Have they considered the effect this has on their citizens willingness to earn their income (and report it) within the country, as opposed to earning it from offshore entities? Tax shelters and offshore havens already do a brisk business keeping one's income away from the government's prying eyes.

Well - this is certainly going to lower the corruption to the minimum. And i do not think that any honest individual would fear to have this info open. There are two slight concerns - possibility of identity theft and, as mentioned by frankensence, escape of capital. Later is not a serious problem because Norway is European analog of Saudi Arabia - with rich oil/gas deposits. Just no Sheiks and almost no corruption.
As for identity theft - i hope some measures are taken against it. It is not that hard.
So kudos to Norwegians. Maybe in a couple of (thousand) years here too?

Putting every single citizens tax record and income online or published in a newspaper could lead to discrimination based on income. I know we have that to a large degree now in the USA, with credit reports, but there's still some control over who gets to look at those.

I think this just gets everyone used to the idea that it's okay to have this information widely available to anyone and everyone. You might think only the crooks have to worry about this level of "openness" while the honest citizens have nothing to hide (and therefore nothing to fear), but once you start giving in to the mentality that every aspect of your life is okay to be scrutinized, analyzed, and cataloged, it'll be too late, even for the honest citizen.