This is a topic we've been kicking back and forth at Jarboe & Stoermer for some time now. The problems with billable hours are legion, but just to name two off the top: first, that there is something fundamentally unfair about charging the same rate for sending an email or checking my schedule on behalf of a client, as we do arguing a motion in court. Why should both activities -- the latter of which is the product of the cumulative weight of years of practice and skill, and the former which could be done by any fool with a keyboard and an internet connection -- be charged at exactly the same rate?
For another objection, the overhead and lack of productivity that trying to keep track of time builds in is highly counterproductive. Some estimate that tracking billable hours adds a non-productivity cost of up to 10% to any given work product. (I actually think it a bit higher.)
Anyway, here's the article: read it and see for yourself - Kill the Billable Hour