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Can I test-drive the Terminal on their remote system? :P
Why not? It's probably an EC2 instance they can reboot anyway, and you don't get root.
Until there's a local root exploit. ;)

My point was simply that this feature carries with it some very large security implications. I'm sure the people developing it are aware of that and will do their best to mitigate any potential issues.

Oh, of course it does, but I'm sure they do...
Local root exploits are few and far between, unless you're running Android.
I wish. I have Ubuntu 10.10, released five months ago, and I already have had to upgrade the kernel four times — because, I believe, of kernel vulnerabilities, most of which I assume are local-root exploits.
Sorry, I was being a bit sarcastic and for that I apologise. Picking Linux kernel vulns is a bit like stealing candy from a baby at the moment due to the way the driver model works. There was an awesome talk about it at dc4420[1] a couple of months back and after some digging I pretty much lost the will to live.

Linux Kernel exploits tend to 'return' into root, the vulnerabilities allow them to execute in ring 0 (on x86) which gives them full direct access to the hardware. Think trojaned firmware updates and that's the kind of capability we're talking about, all because users can load and interact with drivers that haven't been maintained for years.

If all you're doing is test-driving applications there won't be any useful data on them. You could just firewall the instances from any other useful stuff and respawn them from scratch every hour.

What potential damage do you imagine could be done by rooting them?

It seems that the new buzz word in the apps ecosystem is to test-drive before buying after amazon we have ubuntu now doing that (although not technically a app-store)....
Notice the QtNX client in the video - this is powered by http://en.wikipedia.org/wiki/NX_technology which is a sort of proxy layer for X11.

A lot of people hate on the fact that X is network transparent, but this just shows why it's more important now than ever.

It's actually the NoMachine NX client. It's great.
The new version of NX supports Windows and Mac servers, which don't rely on X11 http://www.nomachine.com/desktop-access.php
Thanks for this. I had no idea that Windows was now a supported server.

This brings me closer to the future of having one simple daemon installed on all my machines and then simply having a hardware-enabled remote client netbook.

It looks like they just bolted on VNC - access to whole desktop only (no individual apps), grabbing video, sending pixmaps. The X11 portion of NX provides per-application remoting, and much better optimizations.
Ok, so many years ago we used NX at work because it was a nice protocol that let us run the GUI version of Nessus and a few other tools via Wine on our (then) colo[1]. Anyway, we found that NX was as protectable as Citrix. Several months later we binned it and just VPN'd through the colo. I imagine that unless things have improved from a security standpoint, Canonical's images that they're using for this are going to get owned.

With the exception of one customer with whom we've worked with continuously for 7 years, every single Citrix deployment we've ever looked at has been exploitable to some extent.

[1] - Courtesy of the awesome http://goscomb.net - they're not cheap but damn they're good for UK connectivity.