I know people that also pay cash for two piece of gum at the gas station while clogging the line as the cashier counts out the change for a $100 bill. There are fees associated with handling cash. Banks don't store and transport cash for free and insurance companies don't insure cash losses for free. Why do some places either don't accept cash or put silly restrictions such as "Limit $20 Bills" They don't want to deal with the risks and costs of cash.

Sure there's cost associated with handling cash, just like there's cost associated with crypto currency and BTC in particular.

Just imagine how long the line in your gas station would be clogged up for if you had to wait for a BTC transaction to be confirmed...

The difference is that while you are hit with arbitrary fees when dealing with crypto (be that transaction fees on the BC or fees by intermediaries and services in case of Lightning), cash related costs are already priced into the product and can be planned for from business's point of view.

I guess you should be reminded that lightning does not require intermediaries, and informed that the fees associated with long term operation of a lightning channel are negligible. Even in the case of premature settlement due to counter-party attacks you are paid out the full channel balance and therefore almost always profit in such a scenario - opening a channel with less counter-party collateral then an on chain fee is simply avoided to enable profit or recuperation every time.

Are merchants and businesses that accept cryptocurrency payments converting to US currency immediately or do they hold and convert at the opportune time whether that time is related to market values, exchange rates, tax/accounting purposes?

Other than securing the wallet, there's no carrying costs for whatever amount of cryptocurrency a merchant holds? It's not as if you don't hold a minimum amount in your business account, the bank levies fees since you deposit money so they can lend it back out and charge borrowers 10x as much.