That bitcoins are infinitely divisible is one of the ways in which problems associated with deflation are mitigated once the 21M bitcoin cap is reached.
Divisibility doesn't really help with the overall money supply however. There's also the loss of currency that occurs from loss of Bitcoin wallets.
Even without deflation I think there would still be problems with high variance of BTC just from the psychological aspects of the currency. With central banks you can at least say that there are persons whose job it is to watch currency exchange rates and take one or more of many available actions to curb both inflation and deflation. As far as I can see you just don't have that with BTC (and by design). You can't increase the money supply, any action to decrease the money supply is permanent, and how can you change interest rates for loans when all of the money is already issued?
I just can't imagine BTC being useful for transactions in general (especially important stuff like payroll) when the inherent variance in value seems to require systems akin to what a high-frequency trader would use. It might be useful as a commodity for similar reasons that gold is (but with the improvements that come from its high divisibility).
