1. First, it would take .133 seconds for light to go from one side of the Earth to the other, along the circumference, which is not terrible, although of course the ping is greater than that. Second, the whole idea of a cloud is a distributed system, so you would have copies of common things on multiple mirrors, so latency would be no higher than it is now.
2. The "cloud" doesn't really imply "cloud computers" - as you mentioned, the idea is mostly used for hosting and large companies' databases, where it makes sense. Computers that do most of their processing online don't make much sense, but online data storage can, as all of us who use revision control know. There is also a definite paradigm shift toward mobile devices, which use less power and are much less powerful as well, so the "cloud" is not overkill for them.
3. Where is the Internet free? How far away is it?
Why exactly are we complaining about this stuff
again?