The Bitcoin thing has gone off in a different direction than its promoters anticipated. They were thinking "payment system", like gift cards. The idea was that most Bitcoins would be tied up in people's "wallets", and spent slowly. All that static value would anchor the currency.
Citation?
That's not what happened. Bitcoins turned into a speculative vehicle, with "miners" grinding away solving hashes and generating more Bitcoins,
Which in general is good. The more miners there are, the more secure the currency is against double-spending.
The exchanges are tiny; today's worldwide Bitcoin trading volume is comparable to the sales of one supermarket. The daily volatility is huge, even on days when there isn't a break-in. So no major retailer can accept Bitcoins; they don't know what they will be worth at the end of the day, let alone the end of the month.
There's no reason retailers have to wait until the end of the month or even the end of the day before cashing out their bitcoins. A retailer could cash out their bitcoins immediately, or after the first confirmation block. The volatility of Bitcoin is only a problem for speculators.
The difficulty level has reached the point where buying and powering the new hardware is not cost-effective. And that was before the price of Bitcoins crashed. (The current price is around $13.)
No it isn't. An average ATI graphics card will still net you $100 per month profit, even at the current difficulty.
Worse, they're not just "exchanges". They're depositary institutions, holding customer balances. Mt. Gox customers are now very aware of this, because they can't get at their money while Mt. Gox is down. Some people are worried over whether the money will be there when Mt. Gox comes back up.
Why anyone would store money in Mt. Gox and not immediately take it out after a trade is beyond me. Clearly some people do, but that seems like asking for trouble.
The "exchanges" represent a mis-design of Bitcoin. There should have been a way to do an exchange in a distributed way, without the exchange holding customer assets.
It's not a "mis-design". Acting as an exchange is beyond the scope of the Bitcoin protocol. If you want a distributed exchange, that's an entirely separate project.
However, I can't see how a distributed exchange would work, unless it was just some manner of trust network and actually making the trades was up to the individuals. That doesn't seem particularly user-friendly to me, so I suspect that exchanges will have to be centralized websites.
That said, it would be better if (a) people used alternative exchanges more, and (b) the exchange source code was open sourced.
The EFF was right to bail.
The EFF bailed for entirely different reasons. If the future legality of bitcoin is contested, they want to be able to fight without also being the one of the ones being prosecuted.