Imagine, Bitstamp, Gox and all the exchanges as Gateways. Then add Paypal, Bank of america, Citi Bank and any bank worldwide you can think of. In time, you can use ANY of them as your gateway to move fiat and BTC. You can also choose to NOT extend trust to any of them you choose. This gives the power back to the people.
I could theoretically buy BTC via paypal and send it to Gox. Then I could sell that BTC at Gox and send Euros to some bank in the UK. I can choose how and who I trust and when and where I utilize the gateways. Now this is a simplified version as Ripple is in between these transfers but the cost from ripple is .00001 or something like that. It's like nothing. This is what XRP's are for. To pay transaction fees. The average user wont need thousands of XRP. The biggest fees are going to come from the gateways, which they already charge too much, IMO.
OK, so if I understand correctly, outside of regulatory issues, IYO the unique selling proposition of Ripple is that is makes it easier to move/exchange funds (BTC and fiat) at lower costs. That leads me to the following observations / questions:
1) Your example of buying BTC via Paypal presupposes that PayPal would allow services that deal in BTC to hold accounts. Similarly, Bank of America, Chase, etc. would each have to sign on to Ripple in order to be a trusted gateway. If this is necessary, isn't it just as likely that Coinbase or some other BTC based service will convince PayPal or a bank to integrate into its system?
2) Assuming Coinbase or another startup can connect with existing financial companies in this way, what advantage does Ripple have? The fees to move money on Ripple may be very low, but legacy financial companies are still going to want their fees whether money moves from their infrastructure to Ripple or Coinbase.
3) Perhaps you think that Ripple has value outside of the BTC ecosystem, for instance, that it could actually disrupt fiat payments and currency exchange by moving it outside of the banking system entirely. As this is exactly what Bitcoin seeks to do, Ripple will face the same problems, namely, getting money into and out of the banking system easily, without their buy in. I think you'd agree that banks aren't going to be disrupted without a fight, in which case, Bitcoin has network and brand advantages over Ripple.
4) You mention that the Bitcoin community has failed to address flaws and regulatory pressures, and that this gives Ripple an advantage. Certainly you must admit that Bitcoin is actively undergoing development and is at least further along in the process than Ripple. At this point, can you even judge Ripple's flaws? Aren't you just relying on the promises of OpenCoin?
As for regulatory issues, whatever some Bitcoin users believe, the main devs have indicated that avoiding regulation isn't really a concern for them. Not to mention, when has a new technology ever NOT gone through a period of uncertainty with regard to regulation? In the U.S. we are still debating whether interstate online sales should be subject to sales tax, and it has been decades.
You may well be right that Ripple addresses some of Bitcoin's problems, but after thinking it through, it seems to me that you aren't comparing Ripple to Bitcoin so much as comparing Ripple to the COMPANIES currently providing service in the Bitcoin ecosystem. I'm not convinced that Ripple has any advantage over either new, well financed, BTC related companies or existing BTC companies that get their act together.
