Yes, it's taxed like any other investment asset.
The issue is that, if you go ahead and use it as a "currency", each transaction becomes a taxable event. Say you buy bitcoins when they're worth $500 each. You buy a coffee when they're down to $490, get groceries when they're at $600, buy more Bitcoins when they're worth $575 (new tax lot), then buy a Dell computer when they're at $375, each of these transactions is a separate item on your Schedule D.
For people who have them, the best 'solution' from a tax compliance stand point (not that I'm an accountant or anything, nor that many Bitcoiners seem particularly concerned about taxes), is to hold your Bitcoins and then convert them when you know you're going to be making some purchases (i.e., you know you're going to buy 3 cups of coffee and a computer that day, so you sell $450 worth of Bitcoins and make each purchase with cash). That way your Schedule D will at least be slightly more manageable (1 entry for that days activity rather than 4 distinct entries).