I saw one on eBay a while back before the Touch even came out. It was a 4 gig phone that was upgraded to 16 gig I believe. It had a crazy high reserve and starting price, so I have no idea if it sold or not, and just cause it was on eBay doesn't even mean its real.
For talk sake though, if the failsafe restore when the phone needs to be connected to itunes is on the phone's ROM, then if a totally clean 16 gig flash was installed, it 'might' be possible to just do a restore and get the firmware back in.
Then there is also the possibility thats the phones firmware will not see more then 8 gigs. So, you could install it and it'll only format to 8. Like trying to put a big HD in a old PC, the bios needs to support it. So, could have a similar issue here.
That being said, you'd need to be more then good at soldering. I've not seen the inside of the phone up close, but normally your looking at 50-60 solder points on a area thats like one inch long. I still remember sweating when I did my PS2!
