I've been playing about with Spotify for a few weeks now, and the selection of music is incredibly good, and growing all the time.
At the moment I don't have a premium subscription, but I will get one IF this app makes it onto the iTunes Store...
Apple approving it is a win-win, surely?
Steve and co. have no interest in the messiness of subscription based music 'rental', there are too many issues with end user confusion and dissatisfaction, not to mention an entirely different and potentially complicated set of agreements with the record companies. The lack of a subscription model on iTunes (and therefore the iPhone / Touch platform) is a potential weakness, albeit only in the eyes of a small percentage of people...
Spotify needs premium subscribers in order to make real money.
Killer App for the platform and the service, everyone makes a bit more cash and we get the option to download (for example) Elvis' entire back catalogue onto my phone on a whim, and then swap it out the next day, and the next... great for new stuff, finding new bands, checking out albums before buying them if you want to keep 'em.