I see a distributed hosting model with encrypted peer-routed traffic in our future. It would include peer to peer DNS and country neutral hosting. By that I mean redundant servers in multiple jurisdictions.

Without the ability to take servers offline and to firewall traffic based on source/destination, what is an overreaching government to do?

This reminds me of the Laffer curve of taxation vs tax revenue. http://en.wikipedia.org/wiki/Laffer_curve

As government interference with the free Internet reaches a critical level, their enforcement and intelligence gathering ability will begin to decrease.