Why is Spiral Frog a neat development but ultimately irrelevant? Because it misses the point...or rather three points:

1. Apple sells music so they can sell iPods - iTMS is a service that makes the iPod, nearly everyone's favorite mp3 player, that much nicer and oh btw it locks you into the Apple ecosystem (note: I'm note sure what the stas are, but I can't believe that any more than 5% of music on iPods are from the iTMS). Spiral Frog's service does not provide any listening experience on the iPod nor provides a comparable listening experience on any other platform. To put it another way: it's just not nearly as stylish, addictive, or fun as donning white earbuds, endlessly running your finger around a wheel, or falling into click and skip bliss.
2. Discovering music is a contextual experience - I read somewhere that Spiral Frog may not plan to compete directly with the iTunes music store, but instead think of themselves and providing full song previews in exchange for ads. Huh? On the one hand, this explains why the DRM (6 month expiration without coming back for ads) is so onerous...at least Apple's FairPlay scheme gives the perception of owning the music. On the other hand who is the market for this kind of service? Most people are quite happy with 30 second clips and psychological experiments indicate that we form attachments to songs/recordings in much less time. More importantly (and this may only appear so for lack of detail in the press), the "full length previews" are found actively not passively and without context. By contrast, you could see Yahoo Launch as a "full length preview" service (i.e. radio) that is passive with personalized context.
   
3. Costs come in many different currencies - How can you possible say that listening to a single 90 second ad is "free"? Sure I don't pay any money for it, but listening to 90 seconds of anything is a serious cost. Radio ads are only 15 to 30 seconds long for a reason. We don't even make GarageBand reviewers listen to more than 90 seconds of a song they don't like before allowing them to rate it down. And this isn't 90 seconds every once in a while (on Clearchannel radio you get 4 songs for every 90 seconds of ads). this is 90 seconds of ads for every song. Granted it's only the first time you listen to it, but can you imagine what an enormous brake on usage that will be? Click. 90 sec ad. 30 sec download. Listen. That's so far away from a recipe for rinse and repeat, I can't even begin to even consider the finer points of why this is a bad user experience. And forget about capturing the long tail (unobtrusive AdWords these are not).

So my advice to the Spiral Frog team (which seems to have pretty sharp people and therefore, I wouldn't count them out just because of one burst of, probably erroneous, press).

1. Integrate with a single music player and get a cut of the hardware sales.
2. Recreate the personalized radio experience of Yahoo Launch on a that player
3. "Sell" the music in bundles such that I can listen to multiple songs in a row before being interrupted by ads (and try to lower your "price" point to something more in line with radio while you are at it)

At the very least this will give them a chance at capturing the market Satellite Radio has (small but at least a market that has real people that fall into it) and potentially a shot at creating a truly novel form of distribution.