Personally, I wonder if people will even bother with local storage in the future, though. It's amazing how cheap and reliable the bandwidth is getting. At 800MB-1.2GB per full length move (home theater quality DivX), you can be watching two different movies at different places in the house, watching something on-demand on comcast, and talking on the phone (you finally convinced me to switch); all wireless, with no degradation of quality. I could easily see security companied piping all video to the central monitoring station, for example, and only have local storage for a temporary buffer in case of network outage.
I guess I'm a little more old-fashioned - I like my music to be within reach at all times. So I think I will continue to keep local backups of all my media on mass storage. I am also a little less sure than you are about being able to have enough bandwidth going in and out of the house for a full remotely-generated digital experience for a few years to come - of all the exponential growth curves in our industry (compute power, memory, disk, etc), bandwidth has been the slowest one). As Jim Gray likes to say, the cheapest (and usually fastest) way to send a Gig of data to someone is in a FedEx envelope.
But one thing's for sure, you're absolutely right that the day of the CD or DVD backup are long gone...