I love SQL Server 2008 spatial functionality. Not only because it has effectively killed off the middle-man GIS database software, but it even sticks to OGC standards allowing the same data and tables to be used in nearly all GIS software. However I have some reservations about the use of SQL Azure for GIS applications.
FAQ
How is SQL Azure Database different from working with a hoster using SQL Server?
Developers do not have to install, setup, patch or manage any software. High Availability and fault tolerance is built-in and no physical administration of hardware, storage or servers is required.
If you have a good hosting solution then the same benefits apply (well maybe not the “self-healing” also mentioned). The only real difference I can tell is that you pay a lot more, to be able to scale more easily. Its unlikely your Local Planning Mapping system is suddenly going to need to scale up to meet the expectations of millions of new users, no matter how great the system looks.