The idea is kind of nice, and could make for a fun little flash game. But this is pretty bad execution.
The graphics could do with some cleaning up - not sure how you might go about doing that, but they look very ugly here. There definitely needs to be sound effects (and a mute button for them) and some good music (emphasis on good - no shitty generic house music please) would also be nice (again, not without a mute button).
But your biggest problem is the glitch that causes the balls to pass through the paddle. Hit-detection isn't that hard to program, is it? As I recall, ActionScript has a .hitTest() function for doing that. Anyway, the other big problem is difficulty: there isn't any. The balls move too slowly - ideally, in such a simple game, you should allow players to customize every aspect of difficulty themselves (speed, number of balls, time limits...).
Oh, and being able to customize colors would be great. This is partly because it'd just be a cool feature, but mostly so that people with red/green colorblindness could play it.