Having said that, I think there are serious hurdles to overcome with Bitcoin, and the hype cycle and speculators are doing very little for the credibility of Bitcoin.
What currencies need to work, more than anything else, is for people to believe they will work -- i.e., credibility.
That's what, ultimately, discussions of supposedly "intrinsic" value (which are somewhat dubious taken literally, value is, arguably, inherently extrinsic) of commodity currency and the reliability of the particular governments backing fiat currencies are about -- credibility. Because, ultimately, a currency like anything else is worth exactly what people are convinced that its worth.
The only big distinction between the US Dollar and Bitcoin, from a practical perspective, is that Bitcoin doesn't have any armies willing to defend its status as legal tender. Even if everybody stopped 'believing' in the dollar, its buying power might tank, but it's still legally required to be accepted as payment for all debts, public and private. That legality is implemented through force of law, not good natured belief.
Consider wire transfers. Those undeniably work, but their reputation has been tarnished to the point that most people who do business online will run the other direction if the other party so much as mentions the concept (see: craigslist).