Jav, your work is really exciting. but the space is a problem. If a merchant has to find a place for another PC or Laptop in their store, it will not be the ultimate solution.
I'm not sure how much of an issue the space requirement really is. I mean, a cash register can be pretty clunky as well. But it all depends on the situation I guess, and I agree, that a smaller solution would be much nicer. One reason this is open source is to be able to iterate towards a better solution. I think there are many options to be explored: Maybe a Sheevaplug could be used in combination with a USB touchpad and a USB display. Or maybe even a cheap Android phone to which a USB display is somehow hooked up (not sure how feasible that is, but I have seen some hacks in that direction). The latter would require to port the GUI parts to Android.
Instantaneous transfers among users of a specific service isn't really that special (Instawallet has it as well) and doesn't - in my opinion - really lead anywhere. Take the example of Flexcoin: Nothing against it, but merchants won't be limiting themselves to a small subset of possible Bitcoin customers. Unless that subset is close to all of Bitcoin customers and that is simply not going to happen. Bitcoiners are much too wary - and rightfully so - to let a single payment processor get so powerful.
So what we need is an open protocol that allows to split this responsibility over multiple payment processors. It should have a fairly low barrier of entry for new payment processors and it should be easy to get rid of established payment processors should they start to become annoying. The green address technique is an attempt at formulating such a protocol. It could be implement by Flexcoin and Vibanko and the merchant would then see "Verified by Flexcoin" or "Verified by Vibanko" and it's up to the merchant to decide whether that's good enough.
Would it not be possible to make that option accessible to the customer with a message that says: Do you have an account with Vibanko, Instawallet, MtGox, Tradehill (insert whatever new solutions might come here)? Then the customer can choose that particular QR code and the transaction is instantaneous.