I was ecstatic upon reading the headline and then I thought about it.
Having a "cloud-based" service is more of a pain than an efficient practical vehicle, other than for those people who have and listen to an inordinate amount of music (or high-quality music). (But who is really going to listen to more than 8GB of music a week? Unless you are in the music business, listening to more than that amount of music in a week's time begs the questions: when do you get the time to communicate with friends and family, watch tv, or just listen to your own thoughts.) Really what we are dealing with isn't just a "cloud-based" service to vehicle music more seamlessly, but a steppingstone to something more grand.
Apple has been trying to do away with hardware altogether - progressively producing macs, phones, tablets, and music players that have been thinner and lighter. Maybe what we'll see in future iterations is a reformed OS that does away with the need for memory size because everything - music, movies, apps, and any other extraneous media - will be based in the cloud. So the rumor that a home button will be excluded in future devices may very well be true, since there will be no need to deal with frozen apps and crashing browsers - nothing will be stored locally.
Obviously something like this will have a lot of pitfalls. Namely, the fact that Apple will effectively take their need for propriety to a whole new level since they will have a control over everything that is stored on their server. Furthermore, the cloud-based model has its own limitations: will it be able to work underground, a mile high, and in those 3G-incompetent areas. Moreover, the trend of decreasing, yet costlier data plans will really throw a ratchet in such a plan. Still, if Apple can successfully implement such a service, it will be by choice that consumers jump on board and ditch their old hardware and ideals about how an operating system should work.
So, while a cloud-based service may not be the best idea for streaming music, it can definitely take on a life of its own if Apple proves that it can take "cloud-based" out of buzzword-dom into a realm of practicality never before seen.
For now, I'm more than good with Airplay and my 160GB classic.