By the way, something else I've been wondering (and an excuse to get to 5 posts): what is the incentive for a node to include any transaction in their block for free?
The only incentive is that it will help get more people to be willing to use Bitcoin.
If you have a lot of transactions, isn't it going to take longer to hash? If I was selfish, why wouldn't I calculate a block and only include my own coinbase transaction and nothing else?
It DOESN'T take longer to hash. There's no reason NOT to include transactions.
Similarly, as the network picks up popularity aren't we running the risk that we'll have to start including millions of transactions in every block? Even if the difficulty adjusts to accommodate the slower hashing, won't the blockchain get untolerably large (in terms of storage space)?
I suggest reading this wiki page:
https://en.bitcoin.it/wiki/ScalabilityEdit: to clarify, it's not the whole block that is hashed, just the headers, which includes the Merkle root. The amount of data hashed does not change - regardless of the number of transactions.
Who is responsible for constructing the merkle tree, and then the merkle root for inclusion in a block header? Doesn't that take processing power?