I think it's perfect for some people and unsuitable for a lot of people.
A lot of people have done away with desktops altogether and just use a laptop at home and on the move. The MacBook Air is certainly not for those people, or people (like me) who already have a fairly light/thin laptop. It's for people with a Mac Pro/iMac at home and who want something nice and light to use on the train/plane/in Starbucks/in business meetings/in classes etc.
When I look at my laptop usage away from home... do I need more that 80GB of storage? No. I only need my work documents. Do I use the optical drive? No. File transfer is all done via Wi-Fi or USB flash drives. Do I need more than 1 USB port? No. On the move I'm probably only going to need to plug in a flash drive and maybe a printer every now and then. Do I need super-fast speeds? No. While faster is always nicer, I'm not going to be transcoding video on the move; I'm going to be on the net, or writing, or browsing photos, or watching a film. Do I need more than one battery? Probably not; I haven't so far.
It will be interesting to see Apple using the knowledge they've gained from this project in other products in the future, and if it goes well it will be interesting to see how Sony etc. counter (I've loved Sony's "sub-laptops" for while, but the keyboards, processors, memory, screen size, cost and Windows have always put me off. I can't wait to see what they bring out next.).