I think having both 16 and 32 GB options is a good idea. 32 is just barely enough for me, 16 would be fine if all my music and movies were stored in the cloud - and that doesn't make much sense on capped data plans, and 16 will probably be enough for the vast majority of users, and it will probably increase the sales of the phone if the price is significantly lower.
I won't believe the 32 GB version is discontinued until I hear it directly from manufacturer.