Volatility will naturally decrease as more people use Bitcoin, and as liquidity at the exchanges improves (when it gets easier to move money in/out of the exchanges).
The only thing that will decrease volatility is when more of the currency starts moving. If 98% of the currency is sitting somewhere like a sleeping tiger, the rest of us trading the remaining 2% are at the mercy of those 98%. That would be true whether Bitcoin had a hundred, or a thousand, or a million participants all trading the 2%.
Given that 2% is only 1/50th of the whole, when the other 98% started moving at some point down the road, the result it would be no different than if the Federal Reserve started printing money and increased the money supply by 50 times.
We all know that 98% isn't going to just wake up all at once... but when even just 2% of that 98% started moving, that would be like the Fed merely doubling the money supply.