If all you know is a week from now it'll cost somewhere between 50 and 500 bitcoins, that's a lot harder to plan around.

If BTC is rapidly rising against the dollar, then I'd rather spend dollars because I'll want to keep the BTC in my account in anticipation of further appreciation.

And, for that matter, the fact that the entire conversation is framed this way doesn't bode well for BTC as a currency. People who use a currency as a currency measure its rises and drops in value by comparing what you can buy with a given amount of the currency in the present versus what you could buy with the same amount of that currency in the past. When people measure something's value in terms of some other currency, as is the universal practice for BTC, that indicates they're thinking of it as a commodity for investment or speculation rather than a currency.

Because clearly I wouldn't want to hold anything in Bitcoin for a long period of time due to its instability.

http://en.wikipedia.org/wiki/Bitcoin

"The network never creates more than 50 BTC per block and this amount will decrease over time towards zero, such that no more than 21 million will ever exist.[15] As this payout decreases, the incentive for users to run block-generating nodes is intended to change to earning transaction fees."

While bitcoins can be used for illegal transactions, it does not mean (and never will) that 99% of transactions will be illegal, just like Feds won't shut down knife factory because some knifes were used to kill. At the end, paying for something illegal is not illegal on its own; its the act or good you paying for illegal. So this or another way, in order to sentence someone, Feds will need more proof of a comited crime, than just blunt bitcoins transactions (how about crime itself).