[gamerdonkey]

I think you're right to be critical. This doesn't seem like a perfect idea. Still, some counters to your points:

1. CD's would probably be more inexpensive to produce, but they are much more vulnerable to damage and destruction. Additionally, with a USB drive, the user can save data that will persist from computer to computer, which makes the idea more tolerant to the use of unreliable recycled computers. Hosting a cloud OS would introduce a pretty major dependency on network connectivity, which I can understand them trying to avoid when their focus seems to be on developing nations.

2. That can be expensive, but you might be surprised how many recycled electronics simply end up in these developing countries. These costs might also be why the price of "just a live USB drive" is as high as $7.

3. Again, the USB drive itself probably won't cost $7, so that supporting infrastructure might be included in that price. Unfortunately, it will be up to those running this campaign to provide full answers on that. I'll admit that I'm just speculating myself.