I was also, at first, quite worried about such things.

Certainly, if the currency deflates at a high enough velocity, it stops circulating, and becomes worthless as a mode of exchange.

But I have been convinced to let things run their course now - to see what happens.

Perhaps these may help assuage your fears:

• I doubt Bitcoin will ever be the mode of exchange for all goods, everywhere. It seems to me more likely that it will simply become another economy, alongside the various parochial fiat economies.
• Should the Bitcoin economy dominate regardless of the above, only an early adopter who has held their coins entirely through the currency's meteoric rise has the capability of becoming a plutocrat. Wouldn't that be strange, for someone to see their coins worth $100? And then $1000? And still not sell? And even then, if that person were to wait until they hold 1% of the money in the world... they could never spend it all at once. It would be like a man who finds a mountain made of a single flawless diamond, and proceeds to try to sell it, and in doing so sends the price of diamonds down in flames. Such riches are difficult to actually use.
• But putting such theoretical plutocrats aside, here is the argument that convinced me to not be so concerned about the Bitcoin's deflationary properties: on this Earth, there has never been a deflationary currency. There has never been a currency whose supply increases predictably and significantly more slowly than the supply of the goods it represents. We do not actually know how such a currency will behave in the wild, and while we may speculate, we are speculating. Bitcoin is, in some ways, still an experiment.