Yes, /but/...
This is something that Liam and I have been sparring over for the last ten years or so.
The first thing I'd say is that on Linux- in fact I'd hazard any modern unix- everything /isn't/ a file: network interfaces aren't files, sockets aren't files, USB devices aren't files... and even in the case where some device or OS interface /does/ exist as a name in the filespace it very often needs a specialist API which controls it via IOCTLs.
Second, if we do magically decide that we can do without secondary storage and have everything inside the application program(s) like a 1980s home computer or like a PDA how do we organise it and ensure that it will scale?
I can sympathise with Liam's uneasiness at the idea of having data which isn't immediately accessible to the CPU. However, what is the alternative? There really does have to be some sort of organisation even for something which has a single-level addressspace, and if we assume that the leading contenders are environments like Lisp or Smalltalk we have to ask: how is internal data organised, and in particular how is any form of security implemented?
The original Smalltalk books (Goldberg et al.) casually remarked on cases where system owners were free to change low-level details. However the early non-PARC implementors were quick to point out that such things made systems virtually unmanageable since there was absolutely no way that a program (some species of object bundle) could make any assumptions about what already existed on the system.
To the best of my knowledge, there is no persistent single-level environment where every object has an owner and well-defined access rights. Hence there is no way of saying "this stuff belongs to the user and can be read by nobody else", "this stuff belongs to the underlying environment system and can only be updated by its maintainers", and "this stuff is the intellectual property of some middleware bundle released as open-source, and if modified it can no longer be passed off as The Real Thing".
As such, I have reluctantly decided that the idea of file-less flat systems is a non-starter.