I thought the major benefit of it was that each developers code gets stored within each others repository. My impression was that each developer has their working directory, their own repository, and then a copy of the other developers repository.

Removing the need for central server, as you have as many backups as you have developers/repositories

Turns out this is nto the case, and your code is only backed up (somewhere other than locally) when you push, the same as a commit in subversions.

I am bit disappointed ... hopefully I will be pleasantly surprised when it handles merges better and there are less conflicts ?