You need to solve micropayments to make paywalls work.
The New York Times paywall seems to be earning them a fair bit of revenue, and they're more than happy to give you the three or four articles a month you'd read there for free-- you're not their target market segment.
I don't know how true that premise is, but it's definitely a simpler solution for them than coming up with a solution to micropayments (which you're absolutely right, does need to get solved).
For instance, I've already tipped the original article 20¢ :-) (see my Tip stream at http://tiptheweb.org/tipstream/patg6vy3pyb62/ )
If publishers can get direct financial support from their audience, they wouldn't need to overdo things with ads, and they'd focus more on providing the best possible experience for that audience. Better for everyone.
I don't think I would be inclined to ever tip unless I knew that the author has a presence on the tipping service so I knew they were actually going to claim the tips. Wonder to if a reverse model, similar to a kickstarter would work, as in an author proposes a piece of content they will put some time into a produce if they get some upfront commitment of tips.