I think part of the problem is that it's still too expensive to do micro-transactions--i.e., if it costs $2 to sell somebody something for $1, it obviously won't fly, and even if it costs 25 cents that's a problem.

I don't know if it was actually true, but I was told years ago that it was absolutely de rigueur for Europeans to have a card-swipe reader on their personal computers, and swipes could be taken from a stored value card so even people with poor credit could purchase a certain number of euros' worth. I don't see why we can't put, say, $100 on a "buying cheap stuff" card which would be equally usable for bus fares, newspapers, candy bars, and song downloads.