It will not scale (to mass-market adoption) if you want to put all transactions directly into the blockchain.
There needs to be a hierarchy of services built on top of the core protocol. In addition to improving scalability, they can also offer all kinds of features that some people need, such as reversible transaction, instant (no-confirmation) transfers, verified accounts, or anonymity. The blockchain would be used as a clearing house between those services. Most people would not need to interact directly with it, but they can still rely on the guarantees it provides to the economy backed by the chain.
Just because the underlying protocol is radically peer-to-peer does not mean that you cannot have hierarchies layered over it. Just because git is peer-to-peer does not mean that anyone has the same impact on Linux kernel development. In the Bitcoin world, there will still be banks for example, and credit cards, and insurance companies. The difference is that no matter how powerful those become, they cannot mess with the money supply (and create coins for themselves out of thin air). If they screw up enough that a large number of people stop trusting them, they can be cut out of the loop.
Because of how a transaction ALWAYS needs to be confirmed (at least 6 times?) over P2P, the transfers are effectively far from instantaneous. There is a built in delay. Isn't this a problem?
The confirmations make it impossible for someone to double-spend. If you trust the other party enough, you do not have to wait for this. Same if you have other ways to get back at them if they do cheat. If you are a merchant, you can just calculate a percentage of fraud due to loss. Or take an insurance policy. Shop owners already do that in the real world (to mitigate theft), as do credit card processors. If you provide a service to them (like one month VPN), you can stop doing that if the payment "bounces". If you ship physical goods, you can wait three hours for confirmation easily. You can buy and sell currencies instantaneously on trading platforms like MtGox (so you don't need to trust or even know who you are trading with, as long as you trust the platform).
Waiting for confirmations allows you to (in an automated fashion) accept payment from someone who you know nothing about, without trusting anyone else to vouchsafe, either. That is a nice extra feature of Bitcoin, but it comes in addition to "real-world" guarantees you already have.