Concern #1. Are individuals likely to honor each other's IOUs?
Not any time soon.
Concern #2. Are gateways likely to honor each other's IOUs?
I think only in very specific use cases, such as a gateway that has a huge cash in / cash out imbalance. Imagine a cash over the counter gateway or a merchant only gateway.
Concern #3. Is there enough incentive for users to use this system over other services out there that already allow people to exchange fiat for crypto and vise-versa?
If Ripple catches on as a payment network, then the liquidity will make it a good platform for exchanging fiat for crypto. The big problem with exchanging fiat for crypto is the mismatch between hard and soft money. If Ripple makes hard fiat doable, I think that's enough to make it a competitive platform for exchanging fiat for crypto.
Concern #4. Is there enough incentive for companies to want to use this system, rather than just doing this on their own? If you are a company wanting to start a gateway, are your IOUs going to be valuable until you get other gateways honoring them? Are people going to be able to take your IOUs and use them to get other currencies?
You can provide liquidity between gateways yourself if market makers don't do it for you.