(copy&pasted from my response to another thread)
Litecoin serves a huge function in the crypto-currency world, because Scrypt based hashing is orders of magnitudes more secure than SHA256.
http://www.reddit.com/r/litecoin/comments/1cssqr/the_math_why_litecoin_is_more_secure_than_bitcoin/http://en.wikipedia.org/wiki/ScryptLTC serves as a hedge against any issues with BTC, both in terms of bugs with the software and any sort of attack on the network.
Also Litecoin finalizes the 100% anonymity promised by Bitcoin. I think CrazyRabbit made this point very clear, that BTC transactions can be traced fairly easily even if you use a coinmixer. But if you go into another currency, its 100% impossible to trace further transactions.
For these reasons Im very pro-Litecoin and I think it serves to strengthen the cryptocurrency economy rather that weaken it.