I'm afraid bitcoin will always be too volatile to be used as a currency because it's not backed by anything, and can't be inflated/deflated. The government actually serves a useful function by controlling money in circulation, even though it's not backed by gold anymore, at least it's stable (as long as inflation rates are maintained) which allows it to be used as currency. Sure everyone complains that USD is being printed, but at least that gets people spending - using the currency, instead of hoarding/saving which is what's happening with BTC. At current levels of volatility, merchants will abandon the currency.

Perhaps there's a some theoretical solution out there, whereby the inflation rate of BTC is a function of volatility ... ?