There is no grinding to a halt. The worse case scenario of not resolving this in a strategic way, or not forking for a larger max block size is that Bitcoin will continue to do what it already does better than anything else. It does not "grind to a halt". If your transaction is urgent, you pay a fee.
Exactly. Gavin's GigabloatCoin is being sold to us based on the fear that plain old Bitcoin will explode if people actually start using it.
No such thing will happen so long as we keep the system antifragile, which includes maintaining a defensible/diverse/diffuse/resilient network.
Under a full load, blockchain space/priority will simply become priced at market rates instead of being subsidized like in the past.
It's just like Uber. If too many people want to use the service, Surge Pricing kicks in and cheapskates can wait around for a taxi or bus instead.
And only people willing to pay the fees can use it.
In the Uber example, if the fees get high enough, more drivers will start driving.
The Max Block Size limit is more like the NYC Taxi Medallions, where there are only so many offered and they get bid up due to scarcity.
Uber is more like the new feature alt coin that sprung up because the the Medallion limit can't handle all the passengers, and it has a nifty interface.
The Max Block Size is a necessary constraint on the free market for transactions. It is only necessary because the transaction fee cost is not fully apportioned to all the transaction functions, just to the pools who pay for hashing. Node running and relaying is uncompensated by the fees. Pools don't 'tip out' to those that supply the transactions, just to the block solvers.
If there were a full economic incentive structure, there wouldn't be much reason to care about spamming attacks, they would just fund the network even more.