You're right. We can see all the coins being sent from one address to another.  Now, looking at that information, tell me the identity of the person who owns 18pJmBTvjmcNGUR4CXtUMz5jZbU1KnSx7q.

A large amount of bitcoin's anonymity comes from the difficulty of linking a particular address to its owner (as proudhon demonstrated). Every transaction shows up in the blockchain since it's the only way to ensure sending addresses have those funds to begin with, but careful users may be able to avoid showing any connection with their addresses. This is partially why some wallets create a new address for each change output; it can be difficult to tell which is the real transaction and which is the change when both are going to new addresses.

psuedo-anonymous

I think your logic is flawed!



all anonymous? nothing on the internet is really "anonymous", because you're always using addresses nicknames (e.g. your IP address, Bitcoin address, etc. → pseudo-anonymous...)

Were you looking at something like- BlockChain.info's view of nodes?
 - http://blockchain.info/nodes-globe

The map data is based on information from the nodes that BlockChain.info's network is connected to.  it doesn't (and cannot) connect to all nodes so that data is no exact.  But if it does connect to your node, and you send out a transaction, it will list yours as the "first relayed by" node.  

If you do not want this, there are are ways to prevent this.  The secure method is to use Tor.  Another method is to simply have your client connect to a node (using -connect=n.n.n.n) that does not track "first relayed by" and relay through that node.

There are methods to protect your privacy as well.

There's also the possibility that from your transactions you can be identified.  That's how Goat got his 400 BTC payment back, after the community helped share information that showed where some coins came from (ended up being GLBSE).

There are attempts to automate this to discover information.  Here's one person using Bitcoin addresses posted in the forum to help link people to payments:
 - http://toolongdidntread.com/bitcoin/coming-soon-an-exposed-bitcoin-network/

So, there are ways that Bitcoin can be used anonymously.  By default, it is pseudonymous and traceable.

Protip: Dont publish a bitcoin address on your facebook if you dont want to be tied to an address, or at least one address 

It's a change address in a wallet belonging to DeepBit used for payouts to miners.  So you're right, transactions aren't very anonymous at all.  (Or was that not the point you were trying to make?)

It's important to keep in mind that Bitcoin could be completely de-anonymized if governments desired that.  They could require that all bitcoin transactions be accompanied by a signature using a government issued identity linked to your DNA.  If someone steals your identity, you simply go to the nearest government facility and provide them with a strand of hair and they revoke your old identity and generate a new one for you.  They can also require that the software maintain full records of the identities associated with every transaction and that it get upload every 5 seconds to some government agency.  They can enforce compliance with the removal of one digit after every offense and death after three offenses.  Comcast go down?  You failed to deliver your latest transaction data inside of 5 minutes?  Sorry, you lose a pinky finger.

Bottom line: it's up to people to decide the level of privacy afforded to our financial transactions.

You can trace the IP address identified with the address being sent to.. and therefore narrow down on the location the person is at.

That's one problem I can clearly identify with this system.  Therefore it's not wise to deal with illegal things since I'm certain it's still possible for the feds to track you down via the blockchain.

It's anonymous but not at the same time.