Will the performance of calculating the balance for an address degrade over time? If balances are calculated on the fly by offsetting all the transactions flowing in and out of a public address, will this degrade the performance of calculating such balances in years to come, i.e. when large volumes of transaction history have accumulated? How many transactions would result in a noticeable drop in performance? or is the threshold so high that it's not likely ever to be reached by the vast majority?
The balance is calculated from something called UTXO, this is a list of unspent coins, it is created on blockchain rescans and updated on receiving of new blocks. It is therefore not dependent on transaction history size but only all current available coins fragmentation. 

There are performance issues with this solution also, but they are been worked on...