At best it's a long way off. As Scott said it presupposes fast web access from anywhere, which in itself is a long long way away. I know BT are in the process of upgrading their infrastructure to provide proper broadband services (instead of the up to 8Mb lies they sell at the minute), in this country but even that is 10 years away in some cases. And the U.S. are a long long way behind us still. In some places they are geared up with fibre cabling etc, but not everywhere. Not most of the country, in fact. And then what about the rest of the world? China, for instance, where connectivity is just shocking... India... these huge "world leading" growth economies where 90 odd% of the population still live on rice & shit in buckets. Can't see them binning their Windows 98 any time soon.
then what about mobile users? No way is 3G gonna cut it for that type of use, so you're talking next gen cellular network, which is how far off?
IMO this is just Microsoft coming up with some big essentially pie-in-the-sky talk about the future and life after windows, so that we don't forget who they are in today's world of VMWare, Google, Linux & Macbook Pros.
Do I think it will happen? Yes. I do think it's the way things will go, but not for a long time yet. And even then I don't see it killing off the "local machine" concept altogether. Certainly not for home users at least. It's a more compelling argument for corporations though.
Got to laugh at the project working title too... Midori... drink of choice of classless slappers in horrendous town centre "nightclubs" the length and breadth of the land.
What next? Microsoft Aftershock... computing for those with a mental age in single figures? Microsoft Snakebite & Black for students? Microsoft Frosty Jacks... you get the idea...