I thought the same, that there is no obvious advantage. However, I just used Winmapper to download some Google Street maps for Maemo Mapper. On my Windows XP computer, the downloaded maps were 18MB in size. However, when I transferred them to my FAT16 partition on the memory card, the size is 160MB.

It seems like individual large files aren't affected (18MB movie files still appear on the memory card as 18MB). However the maps are lots of small files. Is this a result of using FAT16 instead of FAT32? I remember reading something about cluster sizes, and how on FAT16 small files will take up more space because of a minimum cluster size or something.