Generally, HD access of large files will be slower on fat 32 because the cluster size is only 4k - meaning that the drive will have access up to 8x more clusters to read the same file compared to fat16.
Don't convert unless you are really running out of space.
The major drawback with fat16 is cluster sizes once you go over 511 MB - they are MUCH larger than fat32, so if you have lots of little < 32k files on your HD they will take up heaps of space (eg minimum size of 16k or 32k even if the file itself is only 1k!)
Other major issue is that FAT16 only supports up to 2048k partitions, meaning that if you have a large HD you'll have to make multiple partitions if you want to stick to FAT16.
So if you've got a fast system with a large HD, stick with fat32 (which is normally installed by default I believe), but if you want better HD performance then FAT 16 is the way to go.
Cheers, Chris