Hi H.!
We have a 20 month old who "still" co-sleeps. Co-sleeping, though less frequent in our society, is really the way families have slept for ages and ages all over the world.
To quickly answer your questions:
No, it won't damage him. I can't imagine any other place for them and us to wake up. It's not a 'bad thing' and it won't cause problems in the future if it fits your parenting style. lastly, no, you don't have to force it upon him either if you don't want to. It is all up to when you and he are ready to make different accomodations, and to do it gently. If what you are doing works for your family right now, no need to change it. When you or him need change, there are many gentle ways to transition from co-sleeping. I do not believe things are harder if you wait for them to be older. I think it's the contrary. They can understand and even be 'exited' about a new bed, etc.
We are adding a new member to our family this fall, so we've put another mattress in our room (they're on the floor to provide easy access), and I'll be laying DD down to sleep there. However, she is still close enough that if she is up through the night she can just climb in with us. We nursed through the night til 15 months, when we gently night weaned, and now we are trying to stop nursing TO sleep at night. It's been a breeze. No crying or anything. She just curls up and snuggles and goes to sleep. I firmly believe it is because she is far more ready now that she is older, than as a baby.
If you were to have him in your bed until he decides he is ready to let go, I'm sure he'd say that at some point. Otherwise, some people start with another mattress in the same room, and eventually (most likely years from now) a different room.
Have you checked out dr. sears books and website? He's a co-sleeping advocate and AP guru. I'm sure you'd find reassuring info there.
www.askdrsears.com
www.drjaygordon.com