Is there a rule that states that 16AWG insulation has to be rated at 90 C? NEC Table 310-16 only has one temperature rating for 16AWG.
Is there any reason to believe that 10ft or less runs of 90 C #16AWG MTW would not be adequately protected by the 20A breaker, since it is rated to carry 18A?
Especially since the actual amps carried by the wire will be much less than the ampacity of the wire. I definitely understand why the main power chord should be at least 12/3, but I do think that there is not a safety risk, inside a grounded metal enclosure, to use 16AWG for individual circuits. If there is a short through the individual 16AWG, I think the circuit breaker would clear before the wire melted. If it were overloaded to 19 amps, it may eventually melt, but I think the risks for that are low.