The difference between 16" and 18" is very minimal, I have changed twice on A4's, so the difference between dropping down from 17" to 16" would be so small ride wise I think you will regret it.
I have just changed the 17" 5 spokes on the cab for 18" S4 wheels and again can't really tell a difference.
The one area that Audi really lets itself down on, imho, is the suspension. The SE is truly awful, far too wollowy whist still managing to fell every small lump and bup in the road as if it were a crater. The sport is a little better, no better at reducing the amount of jarring but you gain a little handling. The S-line on my A3 was pretty good, actually absorbed the pot holes etc. better than any se or sport I have owned and the handling was superb.
I have just bought a cab sport and as soon as fund permit I will get some decent shocks and springs on it if I decde to keep it.
the only difference you will notice with 16" wheels is it will look a bit /ubbthreads/images/graemlins/swear.gif! And you will regret it later.