  We study a two-dimensional system of bosons interacting with a fluctuating
U(1) gauge field with overdamped dynamics. We find two instabilities of the
condensed phase at T=0: one to phase separation and another to a homogeneous
non-superfluid (Bose metal). The presence of both instabilities in the model is
dependent on the low-energy form of the gauge field propagator. We discuss the
relevance of our findings to the U(1) gauge theory of the t--J model.
