Economy cannot reasonably work when there is constant deflation. No one is motivated to invest and take risks.
How can we know without trying? We have never had an economy where the main currency is in constant deflation.
None of them are motivated right now to use Bitcoins.
Ironically, the constant deflation will convince them to sell things in BTC.
If the situation does not change soon, the bubble will burst and there will be a lot of upset users and Bitcoin 2.0 with different rules will appear...
This "Bitcoin 2.0" already exists. Its called Ven and trades $1 = 10 Ven. Despite being introduced to the masses thru Facebook in 2007, it does not have the stellar growth rates of Bitcoins.