I believe the M-16 should go. My problem with it is the caliber (5.56 NATO). It just simply isn't powerful enough. Also, the M-16 is having jamming problems again (however, these can be prevented by daily cleanings of the weapon) I favor going to a 6mm caliber based on the action of either the FAL or the German G-3.
However, if we decide to stay with 5.56 NATO, I think either the G-36 from Germany (already a part of the XM-29 program) or the FN2000 from Belgium is a better bet.
I would like to see open competition for the new battle rifle instead of the Pentagon issuing specs. The Pentagon can modify it to their specs after the rifle has been chosen.