If Apple's going to embrace the cloud wherever possible, it needs to change iTunes too. The program should be simpler. It might be better off being split into separate apps, one devoted to device syncing, one devoted to media playback. (And perhaps the iTunes Store could be broken out separately too? When Apple introduced the Mac App Store, it didn't roll it into iTunes, but gave it its own app.)
I've been calling for this for a long time, but iCloud makes it easy to see how it might work. Why not just use iTunes for media playback, and combine all the different app stores into one application?