Good explanation ISAWHIM. I've read the (FinCEN) PDF document twice now that BCB posted. To me two things stand out and correct me if I'm wrong but the below sounds like they're taking the term "convertible virtual currency" as meaning an item that holds a value such as a deed, title or bond that's held in electronic format and used to exchange for legal tender.
Currency vs. Virtual Currency
FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin
and paper money of the United States or of any other country that is designated as legal tender
and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the
country of issuance.” In contrast to real currency, “virtual” currency is a medium of exchange
that operates like a currency in some environments, but does not have all the attributes of real
currency. In particular, virtual currency does not have legal tender status in any jurisdiction.
This guidance addresses “convertible” virtual currency. This type of virtual currency either has
an equivalent value in real currency, or acts as a substitute for real currency.
The other thing that stands out to me is the wordage on "prepaid". Does the below mean that prepaid is perfectly fine to exchange bitcoin for and doesn't fall under (FinCEN)?
A user of virtual currency is not an MSB under FinCEN’s regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations. However, an administrator or exchanger is an MSB under FinCEN’s regulations, specifically, a money transmitter, unless a limitation to or exemption from the definition applies to the person. An administrator or exchanger is not a provider or seller of prepaid access, or a dealer in foreign exchange, under FinCEN’s regulations.
The operative phrase here is "other value that substitutes for currency" thus "convertible virtual currency" is currency (USD) that is converted to "virtual currency" (bitcoin) which is essentially "other value that substitutes for (real) currency" which depending on the "facts and circumstances" of how you used or exchange or trade virtual currency, could fall under the definition of a "money transmitter" which is a form of "money service business"
http://www.gpo.gov/fdsys/pkg/FR-2011-07-21/pdf/2011-18309.pdfWith regards to "prepaid" that is a whole other ball of wax, and was actually carved out as a separate type of Money Service Business, and again depending on the "facts and circumstances" may not fall under the AML/KYC requirements.
http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pdf 
