There is a cost- liquidity and slippage are not accounted by most.

It's quite cheap depending on the service. I use bitfloor, which charges some very small commission ($0.01 on a $40 deposit)

So, there is a transaction fee...

Not for the transaction. The fee is for currency exchange. Should BitCoin be used for more than just purchasing products from Silk Road, it's conceivable that people might one day be prepared to use Bitcoins as a standalone currency.

Correct - in fact (unless you were a speculator) you wouldn't want to hold onto anything in bitcoin for more than the time required to clear a transaction.

Bitcoin seems to be more like payment method than currency.

But when judged as a payment method it has such poor usability that it seems pointless.

If you point out that it has poor usability for payment, well, it's actually a way to store your wealth. If you point out that the volatility makes it a bad idea there, well, it's actually a vehicle for speculation. Why would you speculate on randomly-generated numbers? Well, because it's so good for payment... or keeping your money away from the government... or... crap.

Bitcoin fills a niche that other payment methods can't. IMHO, that's the only value in it.

Bitcoin enthusiasts just have too high expectations for it.