They can also short below price X but it is not valid unless the exchange rate drops.
to clarify by "not valid" I mean these shorts do not appear on the standard order book and can not be matched with buy orders for bitUSD.
I understand what you are saying.... so lets describe BitUSD better:
BitUSD is a market between those who want leverage and those who want stability. The "price" in this market will depend upon the interest rate people are willing to borrow at to get the leverage they desire.
What you want to do is price fix the interest rate. The result of price fixing the interest rate will be "gas lines" for those who would like to short as shorts pile up on the price. Now the start of the line is constantly moving as the feeds are updated and every time a short updates their "price" they go to the back of the line.
The huge demand to "short" will thus provide liquidity for those who want to go long USD. Where as under the non-price-fixed scheme there is less liquidity.
I think this approach has some real potential to help in the bootstrapping phase.