"completely decentralized" is a strong claim when depending on a network that relies on a canonical directory of relays (at least during client bootstrap?), unless I'm missing something.
This uses Tor's hidden services. The project page says each client makes 3 "random hops" and meet in the middle to create a secure tunnel. The communications never leave the Tor network so, I could be wrong, but I don't think traffic analysis applies here.
If by "cover traffic" you mean there are other users on the system then you are correct. If by "cover traffic" you mean internally generated traffic that can be used to obscure traffic between any two links (e.g. keep a fixed size bandwidth pipe full even when not in use) then you are incorrect. The former is of little value in thwarting traffic analysis and the latter is costly in terms of already limited system performance and imposes costs on participants that few are willing to bear.
Yes, it uses hidden services; I won't know x23ff...sds is you. However, the most plausible link between me and evgen is HN, so x23ff...sds appears on both of our contact lists, it's likely to be a HN user. More widespread analysis of contact lists can probably tell us who you are. (So you know evgen and me, but not RickRoll? That gives me a good idea of who you are...)
This is one reason why it'd be good to use different IDs for chatting with different people. Unfortunately, Tor wasn't designed to work that way, so you may need to run multiple clients or something similarly annoying to get this to work.
While I think tor and something like torchat is good in theory, its big negative in reality is that the speed makes it unusable most of the time. Not to mention if you are altruistic and plan to run a node, you also run the risk of the FBI knocking on your door for someone who used your (exit) node to upload their kitty porn (the exit is not encrypted).
And if you do run that exit node, you can sniff what people are doing (so there goes the anon part).
Tor was pretty bad for web browsing - latency and pages requiring multiple resources meant that pages took forever to render. But how much is being transfered or rendered with chat? Not very much. IRC is usable even over atrocious connections. I rather imagine that textual chat over Tor would work fine.
and I say this as someone who ran a Tor relay on his Xbox to get 1 hop out of the way
http://www.cypherpunks.ca/otr/
It would limit some kind of traffic analysis.