I think that it can work.
My experience is slightly different to others.
I have known this guy for about 4 years, we used to work with each other. We both had long term partners when we met, so never thought about each other in that way.
We met up again after a while of not seeing each other and it turned out that we had both split up with our exes about 6 months ago.
We drank a fair bit and fell into bed together. Neither of us wanted a relationship and in fact, for the first 3 months or so we were both sleeping with other people. We met up about once a month or so.
Fast forward to about 10 months later we see each other most weekends and talk most days and have agreed to not do anything with anyone else. To all intents and purposes its a relationship except that we live 2 hours way from each other and realise that it will end at some point as neither of us wants to make the move over or indeed live with anyone again, given our previous bad experiences.
The difference is, I guess, that we go out for dinner, hang around watching DVDs like a couple, but we have sex (a lot of it!) but don't kiss, hold hands, look into each other's eyes etc.
I sometimes think its a shame to give up that 'butterflies in the tummy' feeling, but then I also like the fact that I can feel free and that this feels disposable and I can do whatever I want with friends (holiday in Barcelona booked for Valentines day with the girls).
I feel I'm giving up some of the highs, but also some of the lows. And I'm happy with that.
It works for me and it works for him, at this moment in time. We are relatively lucky in that as it has changed, it has been at a pace we both like.
So, yes, f**k buddies do work, but they also change and grow like any other 'relationship", including friendships.
If you are both happy, then go with the flow and see where it takes you. I hope that helps in some way.