What exactly would the benefits of a regulated bitcoin currency be?

I would argue not only on one practical issue (who's gonna do the regulating as mentioned) but on another as well -- grey/black markets would provide much more early influx into the currency that getting other vendors to, who really don't have a REASON to swtich (or at least not one that they are convinced of yet).

Right now, the people motivated for BTC to suceed other than ideologically driven early adopters are people facilitating quasi-legal or illegal market transactions. You may not like that. You make think it looks bad. But it actually has the potential to be a very strong "force for good" within the bitcoin economy -- both in terms of encouraging stronger security and actively seeking out potential flaws and by providing lots of cash flowing in that is being used for actual transactions