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Do you think that of-chain solutions will make things like gaming more versatile? For example, could a FPS keep its speed of play and utilize the Steem BC for parts of the experience for things like the login verification, stat records, game records and of course token allocation? This way all of the replays and the like could be kept in low grade storage but identified and tagged on the BC.

Yes. Blockchain introduce a lot of overhead, there has to be a good reason to keep things there. Keeping record of the whole gameplay in the blockchain forever doesn't make much sense, but using it for gamer profile, inventory, achievements, etc. might be useful.

I think that as we progress, designers will get better at sorting critical/non-critical info so that there is a good balance of immutability and performance.

Yeah you're right, if the keys ever got compromised they'd just be able to read everything forever. I guess you could add something like changing keys every x days or whatever, but in the example above it was mainly for things shared between friends on a status update style like Facebook, doubt many would actually care about it being compromised. :D

There are probably not many use cases for an encryption in that example though, anything else would probably require way more security.