Basically, BitCoin for the time being is an interesting asset/investment, but not a very good cash replacement.
As long as the sender converts their money just prior to paying and the receiver converts back to local currency soon afterwards, there should be no problems.
I guess the big assumption here is both parties have access to a reliable exchange that can easily handle the volume of currency being transferred.
Compare that to the fees charged by Western Union or Money Bookers or credit card companies.. You're looking at $30 minimum + 6%-12%
Whether this is the natural market price or if there is manipulation going on is hard to tell.
Certainly bitcoin is more volatile than the dollar, pound or euro but those currencies fluctuate in value too.
Bitcoin will be volatile whilst new coins are being minted, it is in an inflationary phase and the only upwards pressure will come from demand outstripping the supply.