I think it's as simple as, consumers don't want to deal with the latency. I pick a song, it plays instantly, within half a second. Online players for now seem naive.
Rdio is so fast I don't bother syncing music over to my phone anymore. I think I agree, that normal people aren't going to care about the "latency" here. Price, branding, and integration are huge clubs Apple is wielding here though.