1) Bitcoin block rewards will eventually become infinitesimal, at that point transaction fees will be the only rewards miners get. Right now transaction fees are around 0.1-0.5 BTC per block, which is nowhere near enough funding to secure the network by itself. We need transaction fees to go up, and the only thing that will force them up is the blocksize limit. Increasing block size might cause fundamental damage to Bitcoin due to this.
That's possible, but Fractalcoin just got mined out and the price shot up. We'll see if people think it's worth mining for just transaction fees as time goes on, it'll be a good look into the far future of Bitcoin. Theoretically, the lower rewards will still be worth it if the price goes up enough.