Also you can run it through Tor (now there is even Tor service support). It would be cool if the protocol were eventually obfuscated in a way similar to the recent research makes Tor look like Skype video calls. Given that the blockchain is public the best would be to use a mixing service (I think there is research into better types of mixing services but I'm not too familiar with them), or something like OpenTransactions which would allow for an anonymous digital cash "on top of" Bitcoin.

You don't need to identify yourself to use Bitcoin. Now you (and any developers) are free to be as careful as you want. It's really not a bitcoin thing.

Bitcoin can be absolutely anonymous: Automatic Coin Mixing Idea and P2P coin mixing

Somewhat disingenous fob off. In any practical network-connected application bitcoin is at best pseudo-anonymous and at worst a public trail of every transaction you choose to do with bitcoins.

Theoretically maybe it's great ... in practice it sucks for anonymity.

OP,

Recent implementation of hidden services support in the main client is already a good step towards better anonymity. I hope lite clients start supporting that soon too.

It's also possible to use some level of multi-party computation as described by Meni Rosenfeld here. Such protocol would allow p2p mixing of coins, and provide a great level of anonymity. It hasn't been implemented yet, probably because it's not that simple and people have other priorities right now. But if demand gets strong enough, it'll be done. (you may always start a bounty )

Such p2p mixing behind a darknet would already be good enough for me. If you want even more anonymity than that, you might get it with Open Transactions cash-only mode, but then you sacrifice decentralization - OT requires servers. In cash-only mode, not even the server can see whom you're transferring your money to.

well yes. but bear in mind, that there is a tradeoff between several sides: anonymity, trust, speed, centralization, etc.

what you can do right now is to diminish trust in favor of anonymity. this would be possible by sending the private key encrypted via pgp email and immediately sending the coins to another address, for example. but that's not the tradeoff bitcoin itself has chosen.

BTW, Electrum also has a way of prioritizing which address(es) coins are taken from (you need to set the client to advanced mode).  That helps a lot.

However I would argue that a system where, by default, if I send 5BTC to a seller along with my real identity for shipping purposes, they now potentially know not just who I am, but also every single payment I've made and received from that addresses and any others linked to it, is not viable in the long term.  Moms and grannies should not have to understand how Bitcoin works in order to avoid disclosing their past transaction history or savings balances.  Mixing needs to happen somewhere in the client or the protocol, transparently and by default, for Bitcoins to ever be used by nontechies with a minimum acceptable degree of automatic privacy.

There was a presentation at the London conference from a couple guys in Russia which referenced recent papers with algorithms that supposedly would allow proper anonymity at a node or protocol level.  Not sure whether they intended to retrofit that onto Bitcoin or start a new currency.

I wouldn't say that full anonymity is a high priority issue at this time given that Bitcoin is still beta software used by mostly tech-savy people who understand the protocol and concepts like mixing.  However for safe usage by naive people, the involuntary leaking of information is something that's eventually going to have to be tackled, because it's definitely going to come off badly when compared to legacy banking mechanisms.  When I buy something today via credit card, wire, or check, the seller does not (in theory, at least) get any intelligence as to where my funds came from or what other entities I've sent money to.