As far as IQ goes; I really don't think it will be an issue. The Oly E-420 looks great at ISO 100-800 and is usable at ISO1600, that's good enough for me, and I'm sure it's good enough for 95% of most other users as well. And dynamic range keeps getting better and better on APS-C and 4/3rs, so that's not an issue for me.
I do think this will be a wonderful compliment to an SLR, but I also think it will drastically cut into SLR sales as well if the price is right. This system should suit street shooters, soccer moms, and tourists better than an SLR system. That leaves only serious photo geeks, pixel peepers, portrait photographers, sports photographers, and pro's as the market for SLR's.
The M43 system may not have butter smooth bokeh like only FF can deliver; but
it's good enough for amateurs. Plus, it has
far better low light performance then any P&S on the market. Finally, and possibly most important, you won't
have to walk around looking like this guy to be able to take quality pics
