I actually just created a rather major NPC in my game who is a blood magus... I also had a character play one in a previous campaign (back in 3.0, when it was in tome and blood).
But anyway...
The downside is of course that you lose two levels of spellcaster by the end, making it a risky choice for a straight caster type...
The upsides are that increased hit dice (d6 instead of d4 is a huge boost for a sorc/wiz). Moreover, the picking up of essentially two item creation feats without needing to use feats to take em is pretty cool. The downside of course being your limited to 4 "scrolls" and a certain number of potions too (I forget how many off hand). The other downside is the two prequisite feats for the class, which you don't often see spellcasters leaping to take.
Both of these free up feats (a needed commodity among spellcasters), which is cool.
I'd argue their damage reduction (while cool) is sort of negligible in the overall scheme of things.
The whole sacrifice a small amount of Hp to add a damage die is a powerful ability too... sort of like that over-balanced divine sacrifice paladin spell
Finally, that 10d10 living blood explosion attack = awesome, if just for the flavor text alone which a DM can insert when it succeeds. Heh.
I dunno what I think of their 10th lvl ability to transport via blood to any creature. It's essentially just like a modified teleport spell... just seems too weird for a character to use non-chalantly though... but it'd be quite awesome as a way to sneak the character in somewhere he's not supposed to be I suppose... gruesome... but awesome.
Hope this rambling sort of helps.
As a PS, one of the funniest Roleplaying moments I ever saw was when the blood magus was attempting to convince the paladin in the party to partake of his blood in order to recieve the benefits of a draught he'd prepared. It was sort of neccesary to the party completing this mission, but man did the paladin ever see ethical problems with the blood drinking. (and ironically, they were going after a vampire!)