Agree about stuff like Frankie Goes To Hollywood. It's not something I'd buy if I had to spend my money on it, but I'd DEFINITELY be in the mood to spin the disc from time to time. That's where Rhapsody seems to have a great, big hook.
OTOH--and this is where I suspect their business model may work--I have already heard three albums over the last couple of days that I fully believe I will go ahead and pick up next time I'm shopping for CDs: OMD's "Sugar Tax" (I have it somewhere in the bottom of my closet in a shoebox, on cassette), Roxy Music's "Avalon" (I only remembered the title track from when it played on Top 40 back about twenty years ago, but it's the very best album, I believe), and The Clash's "Combat Rock."
No telling what other nuggets I'll pick up on, but if word spreads, and their catalog grows, AND (and I think this is the clincher) if they allow you to burn a certain number of tracks every month, this will be the gateway to digital music distribution that everyone's been waiting for.
On top of that, having gotten the traditional music biz (in the person of the major labels) to buy in, the stage is set for artists to cut out the middle man, and go direct to this mode of distribution for their works.
So far, the "unknowns" and the indies have been using free distribution of their work to get an audience. If they can actually be paid a few pennies for each access through this pay service, I think it'd be so much the better for them.
Listen.Com could have an "undiscovered band" catalog that allowed unlimited burning. This would be the way. Once the volume of downloads/burns got to a certain point--and especially if the bands get to tour on the strength of their building audience--they can graduate to the "big boys" catalog.
Just my thoughts on this.