Being protected by law doesn't help it any - many currencies have failed despite such protections. The volatility is the real issue; as long as the value fluctuates wildly, it won't be useful as currency (and vice versa!).
In some aspects, I would think that would moderate the pricing, since at the moment it's not good for that much else for most people other than speculation and cashing in/out as needed.
More merchants via instant-USD-conversion will certainly increase the popularity of bitcoin, but won't help at all in giving it a moderate value in tangible goods and services.