In short, pretty well. Google Docs has gotten faster and more robust and served brilliantly for my word processing needs. I still rely very heavily on my BlackBerry for communication, so that isn't technically in the cloud, but I'm not using Apple Mail or some other client either.
It was very clear from my week avoiding client software (productivity suites, mail clients, media players, etc.) wherever possible that the average K-12 student could live within their browser quite happily. With Google Docs (my online suite of choice because I've really bought into the Google ecosystem, but Zoho provides great tools as well), presentations, spreadsheets, and documents are utterly simple to produce. Despite the changes to Google's marketing and sales of their Apps suite, their educational version of Google Apps for your domain remains free.
Blogger (and countless other tools) make it easy to produce documents online and share them as needed; Google Docs provides great sharing and collaboration tools as well.
Pandora gives me plenty of music, Twitter gives me quick communications, Gmail rocks, and I can access all of my other email accounts via a webmail interface, too. This is where the experiment started to fall apart for me, though, where it might not for most students (and, actually, most teachers).
First, I regularly access three email accounts, two of which must be accessed via my BlackBerry, an SMTP client, or the webmail site to ensure archiving to meet FRCP requirements. I can have multiple webmail tabs open in the browser, but an email client just makes this so much easier, not to mention simplifying searches through thousands of emails. It also doesn't help that our webmail interfaces for our two email domains completely stink.
I put it out to the Twitterverse, but if anyone knows of a website that can handle SMTP communications from multiple domains, let me know. A web-based email client along the lines of Mebo for IM would pretty well rock and make this experiment a lot better.
I also couldn't find anything online that handled photo or video editing in any sort of efficient manner. Training documentation, as I tried to incorporate screen shots, became a real pain in Google Docs. Most online tools make it easy to incorporate video and images, but editing or tweaking them still really requires client software.
I ran into the last problem this morning. I'm working at a school right now where the router is dying a terrible death and the Internet connection is spotty at best. Obviously, cloud applications don't work so well without an Internet connection. Internet connectivity is largely becoming ubiquitous, but this certainly points to the needs for some local synchronization or cellular access to the web.
So what does this mean for students and teachers using cheap netbooks? It means that even for schools who turn to netbooks as an inexpensive way to get more computers into students' hands, some dedicated facilities for more sophisticated computing are important. It also means that a bit of flash storage, whether an SD card or USB drive, could allow some multimedia files to be handled client-side or moved between dedicated PCs and the netbooks.