Hi Tim, I am doing something similar but until your article have not been aware of Silverlight/Livemesh offline and your approach souds very appealing to me. I am currently writing some software (trying to write it at least!) on the CTP and it has been a bit of a headache due to much of what you stated in the article. When I have something worthwhile I was planning on writing up a step-by-step for CodeProject, but it will be mostly about Azure, ASP.NET, and SDS (not silverlight or livemesh). Since it looks like you have a bit more of a headstart on offline Silverlight/Livemesh would you be willing to share a step-by-step with the rest of us? I already have the CTP invite and am about 1/10th of the way to deploying a somewhat stable simple alpha app.
You can also see a comment I posted to a cloud Reg item here: http://www.theregister.co.uk/2008/12/12/cloud_computing/