Well indeed there is a problem if the only option you have is to use a fractional reserve system because the hard limit of 1mb. Specially if the 'bank' cannot give you back your bitcoins because everybody else has withdrawn theirs for whatever reason
Agreed 100%
If Bitcoin cripples itself at such an early stage then the central bankers will be laughing as they quaff bourbon in their gentlemen's clubs. Bitcoin is a very disruptive technology which has a huge first-mover advantage, potentially returning a lot of power from governments and TBTF banks to the people. If this is thrown away then expect the next major cryptocurrency to be FedCoin or ECBcoin or even IMFcoin which will be designed to integrate somehow with the existing fiat systems. (Oh. And expect attempts to ban community-based alternatives when "official" ones are up and running.)