To be honest, I don’t see any advantage to having music in the cloud other than to look like something useful Apple can sell. It’s not like NAND is as expensive as it use to be when an MP3 player with a mere 64MB capacity was more pricey than the current cheapest iPod Nano.
The most common time I listen to music on my MP3 player is on public transport, up in the air and while abroad, e.g. on business or holiday. If I’m abroad, I certainly wouldn’t be searching for a public Wi-Fi zone or paying massive data roaming charges just to listen so my MP3 player can stream from the cloud.
In my opinion, I think the best idea would be wireless syncing. Since the iPhone and iPod touch can both connect by Wi-Fi, I think a good idea would be to update the firmware and the iTunes software to wirelessly sync via Wi-Fi.