I just can't see how people in a free market would choose altcoins over bitcoins. If given the chance of being paid an amount in BTC or ATC, I'd definitely prefer the BTC, which will store value better than the ever-expanding ATC. This preference for bitcoins would make altcoins fail.

I think the only way the altcoin idea could work would be through government backing. If a government were to legislate that debts can equally be paid in bitcoins and altcoins, then we'd be in a situation where Gresham's Law would apply, and people would tend to pay debts in the less-valued altcoins rather than in the more valuable bitcoins they'd hoard. And in that case altcoins would be a form of fiat money.