There were many discussions on the BitcoinX mailing list regarding the issue of Microtransactions and COIN_DUST and their impact on the viability of Color Coins.
Seems that Mastercoin also has these problems. From one of their publications:
All transactions and operations involving MasterCoins are encoded into the block chain using tiny bitcoin transactions.
So generally, Mastercoin has the same issues as Color Coins, that being increasing total number of Bitcoin transactions exponentially. Will these tiny bitcoin transactions exceed the COIN_DUST limit? There is an entire constellation of issues surrounding the use of the Block Chain for alternative purposes 1) transaction latency 2) block chain bloat 3) mining economics.
Most of what is indicated in this so called '2nd Bitcoin Whitepaper' is an investment scheme, not a technical specification(which greatly adds to it's general distaste). The entire thing from top to bottom appears to be made completely of hype. They seem to be piling on the feature claims at an incredible rate.
http://en.wikipedia.org/wiki/Pump_and_dump It also seems to greatly resemble the Ripple model, where there is some kind of commodity currency that is required to run the system(Mastercoins). Ripple used this as a fundraising scheme and also used it as social device, it has a way of rapidly recruiting advocates(anyone holding a Mastercoin).
-bm