Go Anywhere Backpack smooshes into a pocket-sized ball
These little "Go Anywhere Backpacks" from UrbanTrend HK seem handy. They're tiny taffeta backpacks that fold down into a ball that's small enough to be crammed even into a pocket. They remind me a lot of the backpacks I see kids in Brooklyn hauling their books around in which are little more than a flap of polyester and some string.
Unfortunately, while the Go Anywhere Backpack appears to be something that will be on sale somewhere eventually, there's no clear way to buy them from the manufacturer's website.
Product Page [UrbanTrendHK.com via Oh Gizmo! via Coolest-Gadgets]

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These have been around as long as container ships have been coming from asia...
Order some up for Boing Boing promos?
http://www.usimprints.com/prod/promotional-backpacks-pocket-backpack-locations-330172.htm
Don't worry, there are plenty of those flaps with strings floating around for you to get your cheap on with.
Heck I think we were selling something similar at Radio Shack for a while too!
This style of folding back-pack has been around for a long while. I have one that folds into a small zip-up flat wallet sized bag.
It doesn't take weight and many items well, unfortunately. Unless the material used here is more robust but it looks as thought the one in the photo above on the person's back is filled with paper to make it look full.
Baggalini makes these; I have one. Costs $21-25; made of rip-stop nylon, folds and zips down to a small flat packet. These are nicer than the ones on the promo site (mentioned above); those have shoestring type straps that are uncomfortable; these have wider straps. Not what you want to use every day, but I keep one in my luggage for just-in-cases. Here's one source:
http://www.luggagepoint.com/lpProductDetail.asp?productId=840
I got one several years ago at RadioShack for $4.
http://www.radioshack.com/product/index.jsp?productId=2268597
Maybe a couple pieces of tyvek (housewrap) sewn in would make it much stronger?
Maxpedition (the military-style pack manufacturer) has a similar product that is available: the rolly-polly or somesuch trademarked label. useful in a pinch, but it wouldn't be a good idea for this to be your main bag.
Coleman do something similar, a bit more structured and doesn't fold as small, called the Coleman Compact Travel Walker, I bought one from Amazon,
http://www.amazon.co.uk/Coleman-Compact-Travel-Walker-Grey/dp/B000XZ5B2Y/
There is a UK company that has been selling a range of very compact bags, backpack, messenger, shopping, called Onya,
http://www.onyabags.co.uk/products.php which pack away into a very small pouch.
Reisenthel, makers of some mighty fine compact shopping bags, make a compact fold-uppable backpack:
http://www.reusablebags.com/store/reisenthel-mini-maxi-backpack-p-721.html
Looks sturdier than this Urban Trend model, though it doesn't pack quite as small. I have compact shopping bags by Reisenthel, one that I can carry on my shoulder and another very compact one I can carry in hand. They've both held up nicely to a lot of abuse. I use them as my primary grocery bags which means heavy, wet and odd-shaped items being carried for one to three miles and there's nary a loose stitch or worn spot of nylon.
@8 - i have the exact bag you posted a link to, unfortunately it is not sturdy at all. I have had to sew it up a bunch of times. There are too many seams that can't handle very much weight, and then the nylon starts to fray. I also have the shoulder grocery bag, and that one has held up beautifully. The backpack version is only good for hauling around an extra sweatshirt or something, but then again you could just tie it around your waist.
@9 -
Booooo, that sucks. Thanks for sharing that it's a letdown, though!
@10
I know, i was bummed too, it seemed so perfect-great size, folds up to almost nothing, and cool design/colors. Oh well, maybe they will make a better version.