If 0.04 BTC buys an iPhone then it isn't a "small transaction".  The nominal amount is irrelevant the purchasing power is what matters.   

Often people confused "the minimum required anti-SPAM fee" with "all fees".  In time competition for space in the block will drive fees HIGHER than the min required fee and it will be less and less relevant.  Still in the interim the min require fee can be lowered.  It has been lowered in the past (when BTC went above $20 USD:BTC).   Bitcoin likely won't scale well to micro transactions (measured in USD cents) but neither an iPhone or a pizza would be considered a micro transaction.

Remember nominal numbers are simply arbitrary.  Say Satoshi had decided that the network would have 2.1 billion BTC and thus the standard block subsidy would be 5,000 BTC.  The numbers would be "bigger" but the value of the transactions wouldn't be any more than they are now.

As I've often said before I believe eWallets will play a big role when Bitcoin becomes more mainstream. With eWallets transaction size doesn't matter. Neither does network scalability. You can still do transactions free (wallets profit by premium services and/or ads) and transactions are instant - no confirmation time. EWallets can also improve the user experience in ways the core network can't, such as simply using someone's email address instead of a hard to remember jumble of letters and numbers, searching payment history etc.

This doesn't mean the core network won't be used. There will always be a use for that because it's where the true authentication of coins comes from. However, once you have user saturation in the millions you will see Bitcoins traded on both the core network, and on services built on top of it.

Note this doesn't mean users put the majority of their wealth in eWallets, transferring ill-advised trust and risk to them. Rather, users keep minimum balances on the service, while storing the bulk of their wealth in a more responsible way, such as Armory cold storage.

I'm actually in the process of writing a post with more thoughts on the future of Bitcoin.

You are Atlas's counterpart, then. LOL