Bitcoin developer here.

1. Wallets do not need to store the entire block chain. The vast majority of wallets do not. They use Simple Payment Verification mode where they simply request transactions involving them from peers and receive proofs of inclusion. It is a reduction in trust, but does retain some economic security guarantees.

2. Governments have tolerated other currencies in the past and the present. Look at community / local currencies, for example.

3. Look at the economic waste that goes into the existing financial system. In terms of raw dollars, the money spent on mining is trivial compared to the money spent securing the fiat world.

4. In the near future we will see viable schemes for generating other assets on block chains that play well with the p2p currency bitcoin.