Physical media as a delivery mechanism is *dying*. Apple's got a vehicle they're promoting for unified app and OS management, they're behind the game on this, and folks criticize them for playing catch-up? Seriously? I call B.S. on the "walled garden" noise as well. First, It's a proprietary OS, for cryin' out loud! It's reasonable to expect that the OS update works as other App Store app: the Lion upgrade will be installable on every Mac you own. This is *better* than the current approach, since it effectively nixes the single-user vs. family license EULA distinction. If anything, Apple has been very aggressive about App Store pricing, so this might even be cheaper than prior DVD-based updates.
The only concern I have is how they'll handle the recovery case. But this use case is bloody obvious and the backlash for failing to handle it would be huge. I expect there's something in the works. If it's not up to snuff, then OS X users can and should complain vociferously on the 'net and to apple.com/feedback.