I totally agree that the fluctuations are no good for a currency. People like to say that bitcoin is a currency, but it really could be a lot more than that. Even with wild volatility, it can still work great as an international funds transfer system (assuming the conversions to/from national currencies are smooth enough), and it can still take on Visa, Mastercard and paypal at the online payments game. It also acts as a hedge against bank account confiscation, as a speculative bet against inflationary monetary policy, and as a direct (although more risky) competitor to precious metals. Moderate success in any one of those categories would be huge for bitcoin. Acting as an everyday currency can come later.
You generally don't get taxed for holding personal goods, except real estate, at least in the US. I'm not a tax specialist, but it seems likely you would only get taxed on bitcoin transactions, ie: if you sell bitcoins for U.S. $ you would get taxed on the profit, much like a stock.
If you mean use bitcoins to avoid any taxation at all, well, I guess you better have a bunch of lawyers lined up.
