I don't think we, as humans, will ever work fully remotely. I know companies like 37signals and others have been successful in this working model, but personally, I must have some human contact with the person I have been working with. I would imagine that the majority of humans would also have the same attitude.

Humans are social creatures and we have an emotional need to connect. I can clearly see this as I contrast this human need when I compare my wife's needs and my needs. I am borderline Asperger's and my need to connect is not as high as that of my wife. Although this observation is in a family environment, I don't think it is too dissimilar in an office environment.

So from the perspective of connection, physical location matters.