I live close to a major metropolitan area, and: "Comcast is down again, let's go play Xbox" is something that happens to me fairly often. (Once or twice a month?) Is it a make or break feature? No. But I do legitimately expect to get games without internet, and Steam has occasionally failed badly in that regard as well. I was annoyed about the connection thing because of the big brother aspect of it all. Why not a one-time activation for a game? Yes, it would allow you to slightly break the system in the extreme case but that's an edge case of "never connect the console again".
That plus we trade games in my circle of friends all the time. The "ten designated sharees" thing was an interesting idea but still had that creepy big brother aspect to it -- not to mention it's not flexible enough. There's a rumor that Steam will allow you to lend games now, and I am curious to see how that goes.