KY is rumored to be a good state for NFA ownership in general. Right now is a good time to purchase an M16. Prices are down overall.
A non-Colt registered receiver M16 can be found for around $9k.
There are many options for factory Colt M16s.
Colt AR15 model 614 is a great rifle and can be found for around $11-12k
Colt M16 (just stamped M16) can be found for around $11-12k
Colt M16A1 (stamped M16A1) can be found for $12.5-14k
Colt M16A2 (stamped M16A2 and with all A2 reinforcements) can be found for $14-20k depending on the model.
M16A1 and A2 factory original carbines tend to bring more than their rifle counterparts.
A Drop In Auto Sear (DIAS) is also a great option. It allows you to have a lower that is disposable and the registered machinegun which can be swapped out to different lowers. These have been commanding a premium for awhile now. They tend to be listed for $13-15k, though I am really not sure what they are selling for.
You have to decide what is important to you when it comes to an M16. If you want a shooter only, buy a non-Colt registered receiver or a DIAS. Bushmaster, Olympic Arms, Sendra, and others converted lowers back before the '86 ban. A good Sendra is hard to beat. It is a forged lower. I have heard that they can have some slightly tight magwells but this is easily remedied. I would stay away from the cast Essential Arms lowers, but that is just personal preference.
If you want a shooter and a rifle that is a bit more collectible, go with a factory Colt.
I recommend looking on Sturmgewehr and Subguns as M16s, including DIAS are pretty commonly found for sale. You can also start contacting some of the better known dealers to see what they have in inventory.
I have dealt with David Spiwak in Pennsylvania on a few machineguns (www.davidspiwak.com). He is very reliable, easy to deal with, and tends to have reasonable prices as it relates to the market. I have a Colt AR15 model 614 and also a Colt M16. They are both awesome rifles and have provided me with thousands of trouble free fullauto rounds downrange. I would love to pick up a DIAS, but am not in a financial position to do so right now.
If it were me, I would recommed a steel DIAS as they are virtually indestructible and allow you to have no worries as to sustaining damage to your lower. Kaboom? No problem. Fire control pin wear? No problem. Just replace your lower.