I like the idea of tiny houses, but I don't think I could do it myself, since I just recently bought a house and have two children. I can see the idea working well for singles or couples, but having children in such a tiny space would present extra challenges. Sure, they could play outside, but I think it would be hard for a child to grasp the idea of owning so little stuff unless they had been brought up to that idea from birth. I certainly wouldn't relish telling my four year old that she had to get rid of almost all of her toys and clothes, and even though I'm her mother I think that would be an unreasonable and unfair thing to do to her.
Tiny houses would make awsome student accomodation or homes for young people who otherwise can't afford to own their own place, so they could stop paying rent and start to actually save some money. I'm not sure how well that would work under the current system though. If you get a bank loan to buy a block of land the bank expect you to improve the value of the land by building a home of a certain minimum size. That makes it hard to get your foot in the door if you don't have a lot of money to start off with.
I do love the idea of living with less clutter. My recent move into a house that is small (not tiny, but small, certainly smaller than I had before) has been refreshing. I wouldn't want the upkeep on a larger place. Houses are so much work to look after!