Indeed bitcoin can not exchange fiat lead to bitcoin can only utilised in on the web transactions and for investment decision but fiat is extremely valuable it can be use for every day residing.
For now it can't,since bitcoin were not applicable yet on more stores, some just implemented it but not easily accessible yet, soon when more developments occur, it can be possible.
Well I guess it can never happen. Fiat will still exist and bitcoin can never replace fiat because of the fact that everyone is using it. Also, it is being used worldwide, unlike bitcoin, only few stores accept bitcoin as mode of payment. Fiat has the support of the Government and I don't think the Government will let bitcoin take over fiat.