Off Topic:
[ot]Aw, what a cutie! (And it’s clear what all the inputs are, even without labels.)
Photos don’t do camels justice, though, because you can’t smell their breath … 
[/ot]
I once coded a design which had placeholder text, so I would have to hold my hands up to doing this. Mine was more to guide the user, rather than be used as labels. In such an example I do not think I did anything particularly wrong.
I do not see it as a huge issue however, I guess it all depends on the fields themseves. For instance, name, followed by email are two fairly easy. More complex areas, like a complete form with address, email, name, contact numebers etc… are more likely to have the user trip up on where they are. Worse case scenario, they deselect the box and have their placeholder text reappear.
On a more pressing issue I have seen forms were the placeholder text completely disappears, and does not reappear after deselection, such examples would be highly unusable.
As things become responsive (320px width), it’s likely that people will be wanting to use placeholder as labels. It’s hard to ignore that it saves space.
You can save even more space by removing most of the content from your web page as well.
hehehe… and some do just that! But in the end it’s arguable on why the content is there in the first place if it’s simply going to be removed on a 320px width display.