I think this question is fascinating. For the past century we've been told by all the powers that be, that inflation is necessary for the economy. The money supply must grow for the economy to grow. If your money became more valuable just sitting in your matress, people would hide all their money under their matress, and not spend any.
Maybe they are right, but Bitcoin is an interesting experiement to see if a deflationary currency can work. I think people will want to spend a deflationary currency, because once it is widely known to be deflationary, they will get better prices purchasing in deflationary currency than an inflationary one. They will transfer some assets from inflationary currencies to deflationary currencies, and then find themselves richer... and spend more as a result.
I hope I'm right. If you look at the numbers on Bitcoin Watch
www.bitcoinwatch.com there are 6.7 million bitcoins in existence, and 2 million of them traded hands in the last 24 hours... that seems like a very vibrant economy with a very high velocity of money, no? Then again, it's hardly been a deflationary last 30 days. So the jury is still out.
As for the paying in fractions of bitcoins, currently the annualized GDP of the bitcoin economy is about $10 billion US. (A bit larger than the country of Macedonia.) The US GDP is around 60 trillion dollars. In the highly unlikely event that the bitcoin economy became as large as the US economy, the dollar to bitcoin ratio would need to be 3 million to one. And while you might find it odd to pay BTC 0.00000833 to purchase a book on Amazon.com, I suspect we'd all do our payments in microBTC or some unit that signifies the millionth decimal place. We'd pay mBTC 8.33 for our book and the wheels of the world would go about spinning as before. I don't see this as the fatal flaw in Bitcoins. (Though I will admit that there may be many other flaws... both seen and unforeseen.)