It's a fascinating idea, I think, and really embraces what you can use a blog for. In fact, it made me realise that if I was to ever write a novel in diary entries, what I would do is design it for blog publication first. I doubt you could write and publish something of a good novel quality by writing the blog entry in the morning and then posting, but I guess that would depend on the author. I doubt I could (just using myself as an example because I know my writing habits) because I rewrite a lot. It's not uncommon for me to cut huge chunks of words out of a piece because the original idea is flawed when compared with the new one, which is sleek and beautiful. That means you go back and change a start, or rewrite a point of view, or introduce a new metaphor or... well, many things, should you desire. What that means, of course, is that you would have to write your novel before posting it, but I don't think that would present a problem, really.
Of course, the hypothetical blog novel would have to be written within the next couple of years, before blogs evolve into something new. I suspect the new evolution will be into group blogs of famous people, such as the recently released huffington post, which allows celebrities on the fringe and inside of Hollywood to blog about any old shit. It's the early signs of a new evolution from the group blog like boing boing, though only time will tell if it can last. For a blog to really work, I think, it has to be an outlet for the writer(s) thoughts/projects/information that he/she can't usually find an outlet for. Hard to imagine people who can make a movie and go to a magazine or some morning show to advertise their newest creation or idea are going to stay with a blog when they, reportedly, get nothing out of it. At any rate, in four or five years, blogs will look hugely different, and to do a blog that as a simple text novel in diary entries would be seen as being outdated, one of the things that text and paper need not worry about.
I'm fascinated by blog culture. I must read more blogs than is healthy for me, really, and I love cutting into the individual blog user's style, analysing how he and she is creating a voice, and what audience they're aiming for. Early on when I was thinking about this blog, I made the decision to keep it public friendly, in that anyone who came past here could see that it was a blog designed to be read and consumed by the public. That is reflected in content, to the point where there is, really, very little personal information given, and when there is, people don't know if they should believe it. I was asked the other day if my pie recipe was real, for example.
I like that, though it does raise the concern that the blog can get a bit obscure. Since I've been writing it for two years--and it's changed a fair bit since it started--I imagine that obscure references that only long time readers pick up is one of those things that happen.
The real question I have, however, is in five years where will individual bloggers like myself fit into the blogsphere? If more and more individuals with already existing readerships jump into blogs, will that mean the dirty, five minute flow of thought to entry will become a thing of the past? A cleaned up, measured and guarded opinion driven and edited blogsphere is not the kind of thing I would want.