The AR-16 is better than the other guns because:
It outranges dang near everything excluding a sniper. Not too many maps have enough range to make the Snipers needed over the AR. (At least, not too many good maps.)
Its damage is extremely high compared to most guns. (One decently placed 3-shot burst and they're dead.)
Its accuracy is
way above anything else in the game. Especially when hip-firing. Why should a sniper rifle have a shotgun spread type accuracy when hip-fired but this one suffers little to no accuracy loss?
The whole point of a burst fire gun is to fire in short, accurate bursts. The delay between the bursts is almost non existent. The M-16 and FAMAS of MW2 are just as deadly as the AR-16 but they're more fair because they've got a lot longer delay before you can fire again. As it is, you can pretty much fire full-auto while jumping and running with minuscule accuracy loss and near instant kill bullet damage.
Hitting a moving target is easy, just aim a bit in front and let one or two the 3-shots hit him. Sure you could do that with most guns but these 3-shots will be in a perfect line. Try that with most other guns and the recoil or lack of accuracy will put you other bullets all over the place.
I think it also has the basic four clips to begin with. Where as the FAL only gets three for some reason.
What makes it really overpowered is just that it does almost anything that the other guns can... all at once. You can snipe with it, you can do close range with it, you can run and gun with it, but it does it more effectively. Why snipe and have to line up one good shot on a moving target when the 3-hot burst put in front of them is almost guaranteed to hit at least once. Why even use the other assault rifles when this one has almost full auto and is much more accurate? Why use anything that's good for hip-firing when this suffers the least accuracy loss of any weapon? Why even use an LMG when it takes only one burst to kill with the AR-16?
If I were to change it, I'd nerf the damage a bit. (Not to ruin it.) But enough that you'd at least need two decently placed 3-shot bursts. (Mainly to stop people from getting more or less "instagibbed" Then I'd limit the re-fire rate after bursts. This would force people to make each burst count rather than spraying wildly or emptying a whole clip for no good reason.
Now I have to agree with Max in that the LMGs are pretty easy.
If I could, I rework dang near all the weapons on FC2 to be more balanced.
The PKM is still the easiest for someone with almost no skill or at least no experience. Good accuracy, good damage, no recoil at all, lots of ammo, long range. you can just hip-fire all day and be as good as using the sights. It's the gun I used to finally start getting a decent kill-count.

The SAW is harder to use because of its crazy recoil. you mostly can't fire this from the hip unless you're in shotgun range. But once you can handle the recoil (which isn't too hard for even a complete noob) the SAW becomes almost a deadly as the AR-16. The main reason is that you can just keep firing for a hell of a long time and not have to reload. Plus the damage is very high for what an LMG should be like. (I think low damage, high fire rate and ammo count, good for pinning down a team or providing cover fire.)
Basically, anyone with just the slightest amount of skill can use the AR-16 and tear up a whole team. In the hands of a decent-to-good player and they'll become damn near unstoppable. It handles almost all situations better than everything so there's no need to grab a different gun as the situations change.
As I've said, skill is skill and I respect that. I know when someone has skill and uses this gun or if it's just a noob. I've also said I've got nothing against people who use the gun. It's stupid and wrong to ban someone or hate on them for using something that was meant to be in the game. Again, it's always Ubi's fault.
As an example, I was hosting yesterday and had 5 diamonds available. There was one player (Undead, you know who I mean, everyone else, you probably don't know him) that we knew immediately would take the AR, and he did. He was tearing everything up and always had one of the highest kill counts. Then Ubi cut off all the servers and when I rehosted I turned the diamonds to zero. Sure enough, our nameless player joined again and was the perfect test subject. With not AR immediately available we guessed he might quit but no... He stayed and used everything from the PKM to the G3-KA4 and maybe a sniper a little bit. He couldn't get kills at all. Where his score with the AR was almost 20 (and sometimes was) out of 50 max. His score without it wasn't even into the double digits. That's what I hate about the AR-16, it takes away peoples general skill and focuses it on only one gun, they don't need to know anything except how to use that gun.
On a side note, no diamonds was quite fun, with fewer weapons available, people tried things they hadn't and I noticed some players who usually only use one gun (guess which one) were actually somewhat proficient with other weapons. Even once they had enough diamonds for what they usually used, they continued to use a bunch of different weapons. I may have to do this more often, or at most one diamond.