Probably the easiest way to give a "feel" of the M4 versus M16 would be to give the M4 some sort of modest bonus on initiative (however that works under the specific version of T2K rules involved) and give the M16 a modest improvement in range over the M4.
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I don't know if I'd go so far as to make the M4 an SMG, James. That seems more appropriate to a Colt Commando or equivalent AR variant with a 10"-11" barrel - the NATO equivalent of the AKS-74U ("AKSU").
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For the issue XM177 Colt Commandos, it's pretty much a wash -- that weapon has a shorter barrel than the M4, but the moderator/suppressor on it makes the barrel lengths basically the same in terms of handling. The more modern shorty uppers are a different story, of course.