Mike, I agree whole heartedly with you, I feel this is a big mistake on the part of Microsoft and talking to colleagues around the office we all feel the same. Cloud is great but only if you actually have a net connection, not so good if you don't.
I do wonder if MS will make a U turn on this (they have been known to do this if enough people complain) because at the moment I know people would be looking elsewhere for enterprise solutions if they can't play properly.