Would it be possible to trim the blockchain by periodically publishing a block with the status of all current bitcoins? Then one could delete the history between these events? Almost like a system checkpoint event.
Forever having to store the entire transaction history won't scale. If that is what is needed, then eventually it seems like most people will need to use hosted wallets.
This is an interesting idea if we can make the checkpoints verifiable. The system right now is secure because the client can verify the entire block chain.