There is absolutely no benefit to doing things this way. It makes sense for your content to be streamed so you can access it anywhere, but somehow "streaming the OS" and applications will always be a worse experience than running it locally. A network connection's latency is going to kill the responsiveness of the device, whether your connection is 3G, 4G, Wireless N, whatever- not to mention what happens in those moments that you lose the connection as the others mentioned.
The OS takes up a very small percentage of the flash memory anyway, and the flash memory takes up almost no space in the device itself relative to the battery, so there is no physical benefit to doing it, either.
The Benefit of this is using apples server to store our music, applications, settings.. ect. People would love this because now they don't have to worry about syncing or backing up.
Look at what Google is doing with Google Chrome OS.
This is possible and by the 5 or 10 years our internet will be powerful enough to be able to do this.
If you are worried about the connection latency, go look at what "OnLive" is doing to solve that problem with them trying to stream games to users with an internet connection. Their is no lag time. All real time. OnLive is coming out late this year.
It has something to do with compression I believe that solves this problem.
Remember, I'm talking about the near future. You are talking about how it can't work out today.
Technology gets better that soon we will be able to do this and all you guys would start thinking how it makes sense.
People at apple needs to think ahead for you guys because obviously you guys just want more ram and processing power. You guys can't think of more advancements, thats why companies have to think for you and find different ideas to make their products that we haven't thought about.