Storage in the (not so far distant future) will not be free. Talk about "programmed destruction" yikes. What the bytecoin stuff does reduces all the generated coin, including subsidy what you're suggesting really is a duplicate of it, but less completely considered, please check out the bytecoin whitepaper. I suppose that leaving _out_ the fees at least avoids the bad incentive trap. It's still broken, none the less, and you really can't wave your hands and ignore the fact that subsidy will be pretty small in only a few years... esp with the same approach being apparently ineffective in bytecoin and monero when their subsidy is currently quite large.
Yes it was an idea of the moment to fix the bytecoin model, especially the adaptive limit. With N small enough it might not have bad effects, but it also limits blocks to only 1+N MB forever, which is conservative but maybe not worth the effort. This suits me fine, I would much prefer to compromise on trust and decentralization for payments of small amounts off the block chain any way, and keep the core system as small and trusted (distributed) as possible.