This oscillates every decade or so, and always has. It depends on the relative performance of CPU vs network and so on. Its a yo-yo as technologies develop in unsynchronized bursts and first one scheme works better, then the other.

I see the cloud adding just one new thing - I no longer have to upgrade/manage my personal machine. That's important for some folks and businesses, so it'll change the balance a little.

I hope not. That would be like going back 40+ years: dumb terminals nobody can write software for and 100% dependency on centralized services. Just no, it would be bad in multiple ways, not just technically.

What I fear instead is Windows becoming in a few years a proprietary layer+GUI built on top of the Linux kernel+base environment (not unlike what Android Inc. and Apple did using respectively Linux and BSD), a move that could help MS reduce development costs but also take away from Linux most of its struggling desktop users and push soft houses to support it instead of the real thing. What if they were already working on it and MS WSL is a subtle move in that direction?

That doesn't help, if the terminal is wonky.

Or the network is wonky. Which it so often is.

What difference does that make? "Sure, we run the same borked Windows 10 build as everybody else, but don't worry"?

Well if Windows were running primarily on Azure then the hardware and configurations are a known set so the surface area on which to test reduces dramatically.

In other words, Windows Embedded, Windows for Desktops, Windows Server, and also new Windows for Cloud line descended from Desktop? With majority being the desktop, that doesn't solve much...