Given the fact that you plan to stare at a lot of text, I would go with the iPad 3. The difference in the new higher resolution screen is significant when you are dealing with text. I have some friends that didn't want to spring for the iPad 3 and insist that they cannot see the difference between their iPad2 and my iPad3 when we hold them side by side. I then tell them to open their Kindle app and I do the same. The difference is very clear then (no pun intended). When I look at the text on my iPad3 and then look over at the iPad 2, the iPad 2 almost looks blurry by comparison and I wonder how they read that without getting headaches.
That said, in terms of storage, I would go with the 32gb. It's $100 to double your storage and then you have peace of mind that you won't run out if you decide to do more with your iPad than expected. I have the 16gb and I regret not going bigger. This was my first tablet and I just went with the cheapest option. 16gb doesn't go to far on the new iPad because the high def apps and videos take up alot of space. You said you might get a few games - those can be 1gb or more alone; take a few HD videos with the camera - those add up real fast.
If you are absolutely certain that you will only use it for books and a game or two and some low memory apps, then 16gb may do it. But if you want to throw a movie or two on there or make any videos of your own, then you will regret not spending the extra $100.
