There are no real advantages to fat16, except as you say being able to take the card out and put it in a card reader (or using usb-storage on a Windows machine). Note that on a Linux box you could also use usb-storage and a card reader with an ext2 formatted partition.
Si
The biggest advantage that fat16 has over ext2 (apart from the obvious that windows doesn't natively support ext2) is that fat16 doesn't go belly up if you are forced to shutdown the Z without unmounting the card first.
Ext2 is highly suspectible to filesystem corruption if it is not cleanly unmounted - this means that you can't just remove the card from the Z (even when turned off) and stick it into a card reader - it may mount cleanly or you may need to fsck it. This is one of the reasons that the big name linux distros are moving to journalling filesystems like ext3 or Reiserfs.
That being said, if you want to make use of symlinks and file permissions then fat16 is not what you want. Also fat16 has a tendancy to change the case of file names to lower case which may cause some problems as linux is case sensitive with regards to file names - unlike windows.
If you are going to be changing cards a lot then I'd suggest stiking with fat16, if you want ot install apps on sd card and will remember to unmount before removing the card the go with ext2
Stu