(5) proposition betting is legal in the uk, and there are many, many bookmakers. it's stifled in the us because of gambling laws, but prediction markets in general are nothing new. bitcoin doesn't change that or even particularly make them harder to detect. (the biggest operational difficulty illegal bookmakers face is not currently 'how can people get us money and how can we return it?')
You are wrong about Bitcoin not making illegal bookmakers harder to detect.
Illegal bookmakers, particularly in the United States, could operate over the Internet if they use Bitcoins, which they cannot do with USD, because banks and credit card companies would freeze their assets and help the government prosecute them. Using Bitcoin, they can purchase anonymous, offshore VPS hosting. There are a few VPS services that accept Bitcoin and don't attempt to verify your identity. The VPS would run a Web server and bitcoind. The site can be administered entirely through a Tor proxy, depriving the ISP of the bookmaker's genuine IP address.
Users would place their bets through the Web site, after funding an in-site account with Bitcoins. This would allow the bookmaker to control fraud against himself. Bettors would be forced to trust the bookmaker, just like users of UK's Betfair.
(The bookmaker could also run his site as a Tor Hidden Service, but that would limit potential customers to hackers who can figure out how to get Tor to work.)
Authorities would be unable to apprehend the bookmaker because they would never be able to track him down. Even if the offshore ISP cooperated, they wouldn't have enough information to nail him.
While such a business wouldn't "take over the economy", its market cap would be larger than the current market cap of Bitcoin. That means an increase in the price of the coins.
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