Transaction prioritization[1] and transaction fees already rate limit stuff like that, and patches to the clients used by major mining pools may be able to fix it permanently.

1. priority = sum(input_value_in_base_units * input_age)/size_in_bytes

What determines the size_in_bytes value?

In general, let's say a govt agency get assigned an $18.5m budget to break the Bitcoin currency as much possible, what could their plan of attack be, i.e. spend that money in the most efficient way possible? Create a large ring of wallets and send tiny payment around the ring? Create less wallets but send large payments between them?

Tiny payments. A transaction of 5000 bitcoins and a transaction of 0.0001 bitcoins are the same size. The size is based on the number of transaction inputs, and the number of transaction outputs.

Why $18.5m?

That does seem oddly specific.

Some people say that is exactly what SatoshiDICE is doing :)

Can't satoshi dice minimise the impact by running deposit accounts?

You deposit e.g. 10BTC then gamble it as you wish, and then each individual bet isn't on the block chain.

Then when you're done you can withdraw BTC back out as you wish?

This is how normal online casinos work because they don't want to handle lots of tiny transactions either.

I think they either moved to off-chain transactions or will move shortly. I haven't heard much of Satosh Dice though, wonder if it's still as "important" as it once was.

Welll.... this doesn't look well.

https://satoshidice.com/