This seems like a fair argument for steem power over locking and I guess steem dollars vs dollars is just subjective.

With a billion users already Facebook could sell pictures of farts and become successful if it wanted to, I think the difficulty is in getting to a billion users in the first place.

If Steem gets to a billion users then I agree, steem dollars would likely be a better way to transact vs bitcoin, but that is a big leap and even at that point, being a better option, I don't think its offering huge amounts of utility to the average person over something like PayPal or bitcoin. In fact PayPal at the moment has so much better on ramps (debit cards) and off ramps (bank withdrawals) that I think it is the more compelling option over any cryptocurrency to the average person swapping cash with friends.

I think the real benefit of Steem is the ability to pay content creators. In order to get to a billion users why not let the more widespread and mainstream knowledge of bitcoin and the ability to exchange Steem for bitcoin without a lot of regulatory oversight (vs Steem for dollars) give you a big step up in getting to that point? I'm not suggesting Steemit or Steem integrate with bitcoin for anything other than using it as an off-ramp, so exchanges between users within Steem would still use Steem or Steem Dollars and there would be no 'bitcoin balance' in the Steemit wallet.

I see it like this: if you stopped 100 people in the street and asked them "would you like some Steem or some Bitcoin" a bunch wouldn't know what you were talking about but maybe 50% might know that bitcoin has value and they want some. Its just another easy-to-add carrot to get people posting and if Steemit can sort out PayPal-like on and off ramps at some point it could ditch bitcoin whenever.