Ripple is already doing this

from their FAQ: https://ripple.com/how-ripple-works/

"Ripple is a decentralized but unified system.
The Ripple network is open source and peer-to-peer. So, instead of a central server, owned by an individual or corporation, a distributed collection of servers around the globe runs Ripple. These interconnected servers collectively maintain a shared Ledger. Since the Ledger tracks account balances and not people, moving money through the Ripple network only takes as long as updating the Ledger, a matter of seconds. Also, Ripple contains its own network currency called ripples (XRP), which serve as the single most efficient way to send payments within the unified system."

People are already using ripple as an exchange.

http://bitcoincharts.com/markets/rippleUSD.html

Am I missing something?

Screw ripple.
I think our best bet is colored coins and blockchain transactions. Current exchanges will become gateways, will take fiat and issue fiat-denominated colored coins. So there will be "MtGox USD", "btc-e USD" etc. which you can atomically trade for BTC.
Order matching is another thing and IMO must be handled by separate network of scalable servers for small fee (may be, fixed per-order fee).

Did you guys see this?


http://www.reddit.com/r/Bitcoin/comments/1c4veh/order_placing_suspended_on_mtgox/

Maybe if Ripple was open source we could talk about them but it's not (yet) so pointless. Instead I've been playing around with GnuNet, but found many pitfalls like potential flooding therefore denial of service for nodes acting as escrow.

Since we already have p2p trading on IRC, this forum and localbitcoins basically we already have decentralization. apt-get install irssi and go to #bitcoin-otc and make orders. No such thing as a trading freeze on IRC (:

Trading on IRC is way to complicated and nerdy. Joe-Six-Pack, your sister or your grandma will never trade bitcoin that way - they need a simple user friendly system via a broker to put buy and sell orders, through web or iPhone/Android/WinPhone app

Yeah ripple does not seem ready and the colored coins solution should be able to be achieved fairly simply.

Just a thought ... what would the consequences be of having all of these alt/colored coins being thrown about over the same bitcoin infrastructure...

Would we start to see merchants choosing to only accept MtGoxUSDCoin ? or EuroCoin? It would be quite attractive since there would be no exposure to the risk of market fluctuations, and they can put their prices in fiat.

Is it a bad thing? Or perhaps just a stop-gap until we do away with fiat completely

Could it also mean that bitcoin hoarding becomes less profitable? 

Could be interesting anyway!

I really think we are on to something here.

I'm feeling very confident that the next step towards a crypto currency future is a bit closer.

But on that basis, we should also ensure that we can exchange any alt coin in the same way - and put that into the mix at this point, rather than as an after thought.

Would it be as simple as choosing a different service port for different currencies, or am I missing something?

We should allow the trade of any two assets against eachother in this system as long as bitcoin is used to pay fees to the exchange servers.
Obviously this kind of markets would emerge:

BTC-USD
BTC-EUR
BTC-JPY
BTC-XAU (Physical Gold or Gold ETF or Gold Futures)
BTC-LTC
EUR-USD
EUR-JPY
USD-JPY
XAU-USD (Physical Gold or Gold ETF or Gold Futures)
BTC-SPY (S&P 500 ETF)
...

Where is the Ripple white paper?
All these people know about Ripple from what?