I have read the FAQ. I like the idea it's only a link, I don't need it to be more complicated than necessary. For me it doesn't matter to store a generated difficult password for an account or only a link. But this way the login process is easier and the developer seems to be working on some pretty innovative features which is cool.
Basically it all boils down with all these online wallets is how much you trust the people behind them, right? Of course, you don't store on them big money but it's a convenient way to spend some BTC.
One good question is who is behind Instawallet? Financially. It forms a network with Bitcoin Central, Instawire, Paytunia and Paymium, though the terms and guarantees are different. Instawallet comes with to guarantee but Bitcoin Central is a registered payment processor in France.
Why is it good that Instawallet "launders," or structures the money in various transaction sizes and through various Bitcoin addresses? Though, I can understand it'b beneficial for some (on the Silk Road market) but it takes up to 24 hours to receive funds which is a drawback. But hey it's free! I mean I don't really understand when the bitcoin network charges a transaction fee and when it isn't. If you can tell me in a newbie friendly way.
Also, in what cases Instawallet's green address is useful? For a simple product purchase in the Bitcoin marketplace you don't need one, right? Your funds can go from various addresses, you just receive a confirmation number from the merchant (just like with an online or offline credit card purchase) and that's what you need besides your funds being sent.