I find this to be a positive rather than a negative. I stream Slacker on my iPhone and via the web on my PC. No need to store songs.
Yes, if the only place you listen has rock solid cell coverage or wifi it is great. Unfortunately living in a rural area, I can tell you this would be a huge flop. Clearly being able to have a device that stores music so that you can play it back anywhere is much, much more desirable overall.
The G2 also offers other features like the normalization of the music, so that you don't get that one song louder or lower in volume than the other. I noticed via the iPod stream I get that a lot. Though I do think Slacker has worked on this some as it doesn't seem to be as bad as it once was across the service
The other thing that I like about storing music especially on my G2 is that I can build a rather large station that I can listen to for a day without ever having to hear repeats. I notice on the iPod Touch that if for any reason I shut down and restart the player, it seems to forget which songs it played and I am apt to hear repeats. Granted this is small things, but when you listen as much as I do I find them rather annoying.
The good news is that these iPod/iPhone applications has allowed many folks to listen with a portable device, which previously was totally missing. This will certainly help services like Slacker and Pandora. I also think Sirius needs to jump on this bandwagon too, but like always, they are so far behind the 8 ball.