I think that the sustainability issue can be managed with bloom filters etc, but you are correct. Under the current model where the entire block chain must be in the possession of every client, Bitcoin is not remotely close to sustainable. Imagine if, in order to process credit cards, you had to download transaction data for every credit card transaction in the history of credit cards.

What surprises me is that the original creators, who were obviously very intelligent, didn't anticipate this becoming a problem and create the system from the ground up to address it.