Thistleknot said:
Technically the spell is gone, just like any other spell. If you cast dispel magic on say a Polymorph Other, it doesn't come back in 1d4 rounds (it also has a permanent duration). Theres certainly nothing wrong with having it supressed, but it just means that every wizard able to cast those spells will ALWAYS have them up (who wouldn't theres no reason not to).
The fact that they can be dispelled is usually what keeps people from doing it, or at least makes them wait till a higher level to do so.
Magic items and spells have very little in common when it comes to dispel magic. Magic items aren't "permanent" like a spell duration they are more like physical magic for lack of a better term. They can be supressed, but you can't dispel a swords magic, but permanency is just a spell.
I don't think you're going to have any major problems if you allow it to be suppressed, but then again a PC with tons of permanent spells that can't ever be taken down could become a problem (ie always sees invisible, can't be attacked by summoned creatures, etc).
In short. By the book, the spell should have been dispelled like any other spell (provided the caster was of a higher level than the wizard when he cast the permanency spell), not suppressed like a magic item. Your player makes a very good case for why this is (ie every permanent spell is basically a magic item that takes no slots-only its cheaper in most cases and can't even really be stolen).
