Hi Anthony,
The downside to using only Contacts is the challenge of making sure that they're all qualified, not to mention, storage space. But primarily, It's all about keeping the data hygiene - garbage in/garbage out.
MKTO's Leads as either SFDC "Leads" or "Contacts" is based on types of "Leads" - known, unknown, nurture subjects, operational, etc.
I've worked at two small-midsize companies who chose to forego leads. In both cases they just grabbed a whole bunch of potential customer data an imported it as Contacts at Companies - It led to very unwieldly tasks and data maintenance.
However, if you have serious skills and IT resources for maintaining the data with great integration - it could work. I'd be curious to see it,
Lynn