It seems a bit ridiculous, because you still need a bit of local power for display and fast reactions, and current iPhones/netbooks could do with more power. But desktop PC's have been fast enough in that respect for a while. An advantage of the cloud is that as RAM, cycle prices etc drop, you get it (more of them or cheaper) without the hassle of physically upgrading. And bursty usage is available too, eg. when compiling.
There's solid economics here: it's a sort of timesharing idea, instead of cycles being wasted while you type, someone else uses them to compile. Even more compelling globally - someone else uses them while you sleep. The same argument works for sharing your desktop's own cycles, p2p, but a centralized cloud has admin advantages and other economies of scale.