I just had this same discussion with a friend and we agreed that to legalize all drugs would be a bad idea. Not to say that there aren't drugs that should be legalized, but not all of them should be. Take heroine for instance.
The drug isn't widely abused (not as much as marijuana) and its illegality keeps it that way. Sure, very few people would go out and inject just because it's made legal, but there would be some. Furthermore, legalizing the drug would presumably legalize the sale of the drug as well. This would enhance drug trafficking and allow, for instance heroine, to reach places it could never reach before.
With the drugs reaching new places, the supply would increase. It's safe to assume that the demand would rise to meet the supply. This is all speculation of course.