The whole point of a currency is that it's a universal medium of exchange. On the other hand, most real world payment systems can handle FX between currencies already, so Bitcoin-to-Litecoin shouldn't be too hard.

The point of a currency is that it's an agreed upon medium of exchange, not necessarily a universal one. We're accustomed to dealing with multiple currencies, as you correctly note. None of our currencies have the trait of universal.

It sounds like a proud Bitcoin owner pitching his coin. I think that Litecoin and a few others are already in a good position: http://coinmarketcap.com/.

For one I would think the market cap has to be enormous, to avoid any large entity being able to move the market. Even now with bitcoin at, what, 15 billion dollars? Price can still be swayed 5-10% by a million dollar purchase. Which is what leads people to criticise it for price swings.

Not enough money in the world to support too many networks of the necessary size.

How does that same critique not apply to many of the worlds currencies?

You're talking as if multiple new currencies are not possible when it clear that they are. People who use currencies don't care about the market, they care that products are priced in that currency and are relatively stable.

The market will eventually level out as usage grows, anything new is going to be volatile but there's clearly room for more than one player as long as they're not identical and offer different value propositions then they'll be taken up if only to hedge against the weaknesses of their competitors.

Bitcoin has flaws, it's terrible wasteful of energy as if proof of work were the only possible solution to creating coins. Other coins offer different less wasteful ways of minting new coins, that's going to have a market regardless of bitcoin's success.