Do they just disappear in a black hole? Or does the old client generates error message?
Some people with old clients might not be able to recognize new addresses and send coins by mistake.
This proposal is mutually exclusive of BIP 16/17. If BIP 16 or BIP 17 is accepted, this proposal becomes unnecessary and will not be implemented. Same vice versa.
However, if the question is, will old clients be able to send to new multisig addresses, the answer is YES, and the transaction will work correctly. That's because a sender's client doesn't even know he is sending to a multisig address because it is still just a normal bitcoin address. The transaction is identified as multisig much later when those coins are respent. So, old clients can't see incoming transactions from multisig clients, but they can send coins to multisig clients (including their multisig addresses) just fine.
No coins are ever "lost" with this proposal. When I say "lost", I simply mean that the old client sees multisig coins as "lost" only because it can't understand how they are being spent, and because it's impossible to respend them in a way that the old client will accept as an incoming transaction. As soon as the user upgrades, the new client understands the new spending rules and they are no longer "lost".