The Government is definitely going to want to monitor the flow of money, as they do with regular banking. Over the last decade governments all over the world have introduced new regulations making it pretty much impossible to keep your finances private, by obligating banks and other businesses to provide the state with information about their customers (even internationally). If your business is in finance (and a host of other ventures) you need a license and strict adherence to regulations, which means businesses first loyalty is to the state, as their life line. This also applies to broadcasting corporations.
Writing this, I came to think of a piece by George Reisman, explaining
Why Nazism Was Socialism and Why Socialism Is Totalitarian. In it, he explains (amongst other things) why socialist regimes must always use informants to enforce economic policies.
Bitcoin, on the other end, was created in the Anarcho-Capitalist tradition of Agorism; enabling voluntary exchanges through counter-economics. The idea was to free the marketplace from the coercion of states using decentralized currency, as oppossed to the centralized financial institutions which enable state coercion. However, there has also been significant interest in Bitcoin purely as a financial architecture, for international transfers, which has brought forward the same people that occupy the financial sector. The Bitcoin Foundation is now filled with people that want to make it big by incorporating Bitcoin into the financial system, and they will actively agitate for oppressive regulations to make it happen. Luckily, this group has no real influence on the Bitcoin application itself, but it shows the struggle going on.
This isn't to say I'm pessimistic about Bitcoin, quite the opposite. The application can provide something that's needed to create a voluntary society; shelter, economic freedom. In that sense, and others, it's brilliantly subversive.
To answer your other questions:
Bitcoin is still working, but tools like Dark Wallet are needed if you want to remain anonymous. Amir Taaki and Cody Wilson are always working on awesome projects.
I haven't used Bitcoin in over a year because I've put what little I have in cold storage, but I plan to use it more in the future.
I wouldn't consider Bitcoin, for the time being, as anything other than a wallet; definitely not an investment vehicle or savings account. It's still way to early to tell whether Bitcoin is an end game, but it's probably unlikely. Use it as a tool.
