This is awesome, and I'm keen to give it a try.

As an added bonus, could a user not essentially send money from one note they own to another note they own, thereby gaining even more privacy since at that point even you wouldn't know if they had sent money to someone else or just back to themselves?

Can you do this with an unfunded note? What I mean is, if I want to use pay to note to pay another user, do they need to have a funded note already, or can they create an empty note for me to pay to?