Just as there are USD IOUs, EUR IOUs, BTC IOUs, and so on, is it possible to have XRP IOUs in the system?
If yes, could XRP IOUs be used as transaction fees?
We debated how to handle XRP IOUs during the design. Ultimately, we decided not to have any official support of them because of the potential for user confusion. However, we did reserve the currency name "XRR" for IOUs denominated in XRPs. There is no built in mechanism to pay them off with XRPs, but it's not difficult to place a 1-to-1 exchange offer. Such functionality might be added in the future.
We also debated allowing IOUs to pay transaction fees directly, rather than having to first exchange them for XRP. We couldn't see any advantage and there are some significant disadvantages in addition to the added complexity. The big one is the exchange rate might change such that the transaction can't claim a fee and we wouldn't discover that until the transaction was processed. There was a fear someone could bombard the network with such transactions and cause high load at no cost. Instead, we decided to try to keep transaction fees so low that there would be no reason to care.