I believe the future of the cloud, for businesses and the consumer, is in hybrid applications, that are both native and available over the web, that store data locally as well as synchronise when on-line, with strong encryption and security and practically unlimited online storage(for a price).
There are examples of this already -
Celtx is a good one that I've used personally with a reasonable amount of success.
I suspect some applications will remain always tied to local machines simply because it doesn't make a huge amount of sense to do otherwise.
Do not make the mistake of imagining that access and bandwidth in the future will be as limited as it is today. Bandwidth is increasing exponentially, and the amount of data points, at a minimum, around major cities will increase. You may lament you have limited access or speed right now, but this is unlikely to be the case in 10 years time. Today's cable and ADSL connections will feel like 56k baud modems popular in the 90s.
True enough, but at the same time, some applications simply don't make sense to have only as online.
But let me take my view of the future much further. With web applications becoming increasingly ubiquitous, we will find many new Web based desktops taking advantage of native code compilation and graphics acceleration. These will relegate the OS to a layer that merely runs applications launched by URLs that in turn open browser based windows. To all intents and purposes web desktops/Window managers, customised to your own usage, will appear to perform as efficiently as regular desktops do today, on any system anywhere you are in the world. The era of the native desktop as a necessity or differentiating factor may end some time in this decade.
This is where we disagree I think. Like I said earlier and agree with you - hybrid apps for some things make a whole lot of sense. The moment however you dump that to do online only is the moment you become absolutely dependant upon not only the companies not screwing you over, but that the connections are available at all times.
The moment you loose that immediacy of availability, it falls on it's backside as an option for most users. Sure, people will try it, some people might even like it. What's more likely though is you'll end up with a situation similar to that which was seen with the launch of Vista: People going en masse to get XP put on those machines.
The major driver for Cloud computing is business and their desire to provide SaaS(Software As A Service) so they can pick up regular licensing fees and curb piracy. Personally, I see nothing wrong with this model which continues to keep the IT industry afloat, not to mention keep me and many, many developers in a job.
I see the companies pushing for this certainly and for the reasons stated. I can also see a lot of other companies dismissing it out of hand due to data protection and privacy laws. Others will baulk at the prices and find non cloud smaller commercial or open source alternatives to pick up where MS leaves off. Having all apps on the cloud simply does not make sense from either a business or home user point of view.