I have been against the idea that paid music (or any digital content) does not work. I have written many posts. Here they are.
I believe one of the significant obstacles is micro payment, which I have mentioned here, in terms of both price level and payment system. And according to Techcrunch, Lala allows you to buy web-only versions of songs for 10 cents. When you want to 'own' the file in your iPod, you pay extra 80 cents.
Another pro is that they will lanch streaming to iPhone. One thing innovation does is to reduce waste. There are guite a lot of waste around music: Many people storing the same songs, storing the same song in multiple devices, songs stored but not being played often, etc. Chris Anderson seems to believe that because we have abundant storage, it is fine to 'waste' it. See his blog or Wired article. (However, he has refined his theory and became much more reasonable, focusing more on freemium.) But I am not sure if those waste is negligible given the abundance we have. Those small wastes add up.
I have not used it. In fact, they are not offering the service to people outside the US. But with their business model, I think Lala may have a chance in the crowded music market. Let's see how it does.