It would be a fantastic option for casual players looking to use Move.

if the new PS3 slim supports the ability to change HDD like the current models then all this "16gb won't suffice" will become obsolete.

All right man. Tell you what; it's only going to be a few months until the official final product is available and the iSuppli tear down confirms what's inside. You roll the dice on what you think SCE engineers can or can't design.

If SCE engineers came up with a SATA interface flash card with a mere 16GB of NAND on it, the interface (SATA board) would cost about as much as the NAND itself, maybe a bit more depending on whatever contract SCE secured with a bulk OEM order of NAND chips. 

It boils down to whether it costs more to design two logic boards, one with flash on board, and one without, assuming all new logic boards don't contain flash memory for firmware and firmware updates, in which case, the 16GB SKU would simply have more flash memory, adding maybe $5-8 to the production cost, tops. 

As for the "protection mechanisms," I'm assuming it's occurred to you that with an all new designed logic board and overall hardware design, nobody but the SCE engineers who resigned the the hardware and management that approved the designs knows how the protection measures will work. 

If it doesn't, then that would have to be just about the most stupid engineering decision made short of that PS3 without a BD drive a lot of lesser informed individuals were requesting or suggesting would be a great idea. 

PS3 is gonna take over the world