Clearly Steve has said he doesn't like making consumers pay for something they have already purchased. So I am assuming it has to be a free service of sorts. However, no one likes giving anything away so I think they will bundle it with MobileMe. If you are already paying for the "cloud" service, they will just add an iTunes section. Personally, I'd love to not have to buy the most expensive iPhone, iPad just because I have a huge iTunes library. I'll put my favorite songs physically (so to speak) on my device, and I'll stream the rest of the library. Viola, more room for apps!
The space you would save on your device (not to mention the money if you get a smaller HD), and free streaming of your own personal media would be a huge selling point for MobileMe. They would get tons more subscribers and the more subscribers they get the more the "Apple experience" is enhanced for these customers. I love having all my devices synched up automatically. (My only complaint about MobileMe is the price.)
That being said, how are the big media companies not loving it? They should love it that people consume their product constantly. Anything that facilitates consumption should be a good thing.
Lots of options for Apple as well. Make the MobileMe streaming of your own media free, then offer subscriptions for other content. TV subscriptions, movie subscriptions, and of course music subscriptions. Its all your own choice. Pay for it if you want, if not, buy your stuff and stream it via MobileMe.
People better get used to this though, streaming is the future!