two possibilities.

a) a larger miner (think major pool) is scared of producing blocks larger than 250KB due to increased chance of orphans on larger blocks.
b) there aren't that many paying transactions.  miner have increasingly less reason to expand block sizes to include large swaths of free transactions.  Yet many users (likely being sold "Bitcoin is free" nonsense) insist on never including a tx fee.

On the second point let me share an antecdote.  Had a customer who absolutely needed a wire received that day and the bad news is it was already 3PM EST when he sent the transaction.  He paid us $20 wire fee (plus accepting a lower exchange rate).  Now we will lock in an exchange rate at 0-confirms but won't send funds until 3-confirms (6-confirms is just overkill for 99.9% of tx out there BTW).  I think you already know where this is going.  To save a quarter penny the client opted to not include a tx fee.  His order didn't confirm until after the wire deadline had passed, worse it was on a Friday. So he saved a quarter penny and got his cash three days later.

Would be interesting to do some stats which take a look at when a block is produced how much of the "excluded" memory pool was paying tx, average fee, how many unpaid low priority, how many unpaid high priority, etc.

It is actually quite interesting on a number of levels.

Normally such a paper would be frowned upon, because most of the citations are at least 10 years out of date and as for going back to 1957 for reference material... very dodgy..... esp. as there has been a lot of work in probability theory since then.

It is as if the citations were 'thrown' in as an afterthought with an underlying lack of research.

"The truth is, we know nothing of what goes on at Bitcoin headquarters."

Quick, someone invite Mr. Lewis to tour the Bitcoin headquarters so he can find what goes on!  

The rumor has now been officially denied.

The idea that you can build an alternative currency whilst ignoring these rules is absurd, the graveyard of previous attempts should be enough to persuade anyone of that. eGold got whacked just months before the Bitcoin white paper was released. If you do try and build an entirely underground currency, how would you convert fiat into it? Street traders? How would you know if the person sitting opposite you was not a government agent? There are no examples of such a thing ever working at scale and I don't anticipate seeing one anytime soon.

Once more for those who are having a seperate conversation; I'm not talking about the delays of BFL vaporware, simply using them as an example of hilarity in track record.

I couldn't give two shits about BFL getting tagged, that's about the greed and naïveté of their client base. I'm talking about Josh, the person incarnated by the forum name Inaba and his six figure boast-bet. Yes I find the split "one account to kinda stay profesionnal but not really and one account to flat out insult clients" method stupid, but it was allowed so that's that.

Stop trying to tag BFL in this thread.

Geez, as long as he doesn't flat out refuse to pay, he can take all the time in the world, right? Never mind the fact that he didn't put up the cash in escrow as specified and that it's been two months, it not like he (or the people he works with) have a track record for being hilariously late with stuff and or simply not delivering.

I actually didn't realize that. Great point.

I'm kind of curious what kind of hash rate would it be useless though as the difficulty couldn't get higher?

Really good point. Thanks.

First I would say that buyer information will only be exposed at the level of account number, bank and possibly name (all this info is already semi-public as we've discussed). This will only arise in the case of dispute. And for a lot of people (I can't say most, I just don't know), even in that rare dispute case, they will not even have to display their account balance, let alone other sensitive info.

(Other comments are for P2P exchange generally, I am thinking here more of my own plan as in https://bitcointalk.org/index.php?topic=210903.msg2210078#msg2210078):
But the general point of the Sybil attack applies to the role of escrow here. It's another good reason not to overemphasize reputation. Identities will be cheap to acquire here because they will be linked to bitcoin addresses. I wouldn't want to somehow make them artificially expensive. Users will have to enter bank account numbers too (encrypted I guess by default), but they don't necessarily have to use them so that doesn't help.

Off the cuff thought: we could retain the ability to create cheap addresses, and thus use the network to buy bitcoins for the first time, but limit escrow agency to members with non-zero bitcoin addresses (balance above X). This would prevent swamping the network. Then the escrow agent for any transaction would be chosen randomly from those slightly-higher-status users. And also, we could keep the option of a "second opinion" if an arbitration goes against you (but that's really off the top of my head, so if you don't like it, ignore it).

Showing newbies that the account they're trading with has no trust or rep is 'working' don't you think?

And BFL is hardly the only one to not get a scammer tag, going by your standards coinabul and bitinstant should probably have one as well. Not speaking for theymos, but the acammer tag isn't appropriate for businesses in general, shouldn't be judged by one action. Newegg and amazon would probably have scammer tags if everything was as black and white as it seems to be in your world.

Tor had crossed my mind too, but I rejected it as (a) users will be put off by it and (b) it will make the networking side even more difficult to figure out. Certainly, the anonymity is important, and we should use as much encryption as possible, but there will still be occasions (not often) when someone else on the network sees your bank account number.

As for splitting the banking session records amongst many users, it seems very complicated.
First, to emphasise, we don't need to expose login details at all. (e.g. in the last version of the design I posted a few posts back).
But more importantly, I actually think we do need human intervention for the escrow action, in order to correctly parse the banking session record. So that would need one person to make the decision. The trick is that the USD seller would only show those pages he wanted to show.

My thought was always that the escrow would be chosen randomly from a large network thus making collusion between escrow and bitcoin seller either impractical or impossible.

One generation's revolutionary is the next generation's bureaucrat.  That was a great part of the problem; Mao lived in an information bubble of his own making.  He didn't trust the "intellectuals" but those whom he did trust were no more worthy of such faith, and tended to be less informed upon the subjects for which they were expected to advise than the intellectuals who proceeded them.  Like anyone else, they were just trying to maintain the little fiefdoms that they had built up during the revolutionary period, even if that required deceiving the monarch in order to maintain political favor.