A couple days ago, I read a really good article about our recent announcement of Cloud: "Is this the Cloud You Really Wanted?" by Sarah Perez of ReadWriteWeb / Microsoft's Channel 10 Blog.
Sarah brought up a great point about the main drawback of Cloud being that we live in an offline world and also mentioning that technologies such as Google Gears and Adobe AIR are not totally mature in practice just yet (although we think it might be a matter of time, albeit a long time if ever).
Cloud addresses the offline world in 2 ways:
1) Bundling Windows PCs with Cloud. Windows is a reality for most people and their computer needs, and that the value of Cloud and of Windows is different and complementary. I have to admit, there are times I need my Adobe Photoshop to design something, or Apple iTunes to connect to my amazing iPod Touch, or open up Microsoft Office to view documents and presentations from other companies, so I can understand why people need Windows. Of course I use a Mac when I have to use applications, but regardless the need for offline and rich client applications is obvious!
2) Supporting Rich Client Applications. So Cloud supports offline applications as well, such as Office and NotePad like applications in terms of pure capability. In terms of design choice, however, we're happy to focus on the online world (after all, it's called Cloud) and leave the offline world to Windows. Sticking to what we're good at, and doing one thing well is important after all :-)