Firstly, Microsoft's FREE online storage offering Skydrive has been increased from 1GB to 5GB of space! Now you can store even more of your useless junk on somebody else's machine. Seriously though, this is the way it is all moving. I have no doubts that within a short space of time we are going to be seeing online storage space that rivals current hard disk capacities (ie 80GB or more). I just need to work out a way to back up my data directory to Skydrive rather than uploading. Give me some time and I'm sure I'll find a way.
Next, have a look at Picnik (it take a little while to load initially) which is an online photo editing tool. Don't be fooled into thinking this is a light imitation of Photoshop or Paint shop, this a full on threat to these people. The site is beautifully designed, easy to use, and gives you the results you need for anywhere you have an Internet connection. It is even linked to Picasa from Google (which is another great example of cloud computing).
Boys and girls, its time to get online and start thinking about how you can offer services around these types of applications to your clients because if you don't someone else will.