It will be both. Apple will still let you download the music to your HD and iPhones and whatnot, but you will also be able to listen to the music you have bought through somekind of cloud based inclusion in iTunes. Kinda like the iTunes store previews but with whole songs that you have bought. That way you can log into your iTunes cloud on someone elses computer and listen to your streaming music, playlists, movies, podcasts and everything else you have bought through iTunes (or hopefully have in your iTunes library). It will be awesome because it will be the best of both worlds. Just you wait!
"both" seems a little over-loaded. I see 4 different models here:
1) download and own (no DRM)
2) download and rent (might be one time view and then self-trashes the data file, or it might be subscription based (like netflix, only with media downloads instead of physical media)) (heavy DRM)
3) stream and own (your collection is owned, but is stored in the cloud (perhaps in addition to being stored on your own device -- sort of like Google Docs, only instead of storing your word docs, it's storing your music/videos/etc.) (no DRM)
4) stream via subscription (you don't own it, and you probably don't get to keep a local copy; or if you do get a local copy, it's heavily DRM'ed and you'll lose access to it as soon as you stop paying -- this is sort of like Rhapsody or Pandora (Rhapsody has, or had, dedicated media players that would cache music you selected, but you otherwise had no access to the media files, and you'd stop being able to play them if you stopped paying for Rhapsody)) (heavy DRM)
I think all 4 options are good. As long as all 4 options are available ...
#1 gives you autonomy
#2 gives you flexibility, and might be cheap depending on your viewing habits, and what form the rental takes (pay per view vs subscription)
#3 gives you storage options, probably flexibility about location, safety for disasters, scalability independent of your device's raw storage (yet, without having to resort to SD cards), but hopefully still gives you options for autonomy
#4 gives you flexibility and should be relatively cheap, and in a way, it might replace the role of radio in terms of discovering music and finding what you want to buy.
There's also the question of: which media are going to be covered? Just music? videos/movies/tv-shows? the rumors about emerging news/virtual-print media?
I'd personally love to have #1 and #4. Use #4 when I'm in a Wifi spot, or at a desktop with broadband, and use it to casually listen to new music (music/movie/tv browsing), read news, watch movies at home, etc. And then use #1 to purchase media for off-line/disconnected use and things I want to "own" (favorites, etc.). Maybe #2 for content that I want to access off-line, but don't want to own (if it's much cheaper than #1).
Combine that with a 10" Apple Tablet, running a finger-friendly version of desktop OS X, and a PixelQi hybrid display, and that'd be golden.