I've put in an email to Michaels to find out if this ridiculous policy is in fact store policy, or simply an employee exercising poor customer service, but I haven't heard back from them yet. Even if such a policy exists, refusing to take 16 quarters for a purchase is simply lazy. I can see the same cashier refusing to take 16 singles next week because counting them would be too much of an inconvenience. Turning down this small of a quantity of change would obviously violate the spirit of any such policy if one exists.
If like me you wondered how a store can refuse a government issued coin, which is "legal tender for all debts public and private" it's because while these coins can be used to satisfy any debt, private businesses do not have to accept them. The Coinage act of 1965 set this policy into place meaning that coins and bills are a legal means of paying a creditor but allowing private businesses to set rules on forms of payment on their own.
I can understand how at some point a store might say that they won't take accept pennies for items over $20 since it can hold up all of the other customers. Aside from any store policy it's downright rude to pay for high ticket items only in change. I'm sure if you had asked me whether stores should ban all coin purchases 8 years ago while I was busy counting out $50 worth in my Kmart vest I would have agreed with you but stores shouldn't be banning reasonable amounts of change.
I think business need to remember, money is money, no matter how small and customer service is the most important of all. Taking change is simply good business and when many retailers are suffering poor same store sales; refusing to take cash of any kind is a surefire way to fail!