Unless this provides the entire distro it seems like people are still going to get hacked through vulnerabilities in other software.

I agree. But I wouldn't use this argument to discount the product - this really should be implemented. It seems like the solution would be to provide a specialized "Coinpunk Ubuntu distribution" that you can install on the cheapest Amazon instance or any other cloud server.

I think this a pretty the ideal way to have a bitcoin wallet. You can probably trust Amazon better than you can trust your own machine at home (Companies with much larger assets than you'll ever have are able to trust Amazon), and you can also count on something like S3 or gmail for backups.

The ability to log in from anywhere without having to install a client is really important for usability.

Definitely. This is one of the largest benefits of open source software to me.