I can't agree more with Sholto Ramsay's and your points regarding the idea of music as an experience.
Several weeks ago Napster was having a Labor Day weekend promotion, where they allowed you to listen to any track in their collection for the whole weekend.
I had a chance to give that a try and what I've found was that a subscription service is a lot more of a "listening service" than a "music download service" because if done correctly, it enables you to sample/discover lots of music you normally woulnd't hear. Besides, why would someone with a broadband connection bother downloading tracks that become impossible to play once the subscription ends?
Napster had a few neat tricks up their sleeve in terms of discovering and browsing through music in a non-linear manner. The social element was also present there as you could browse collections of other users and, best of all, get a list of the tracks Napster users were listening to at a given moment.
Those two little features combined with a well-executed "Related artists" feature allowed me to browse and listen to some really bizarre things. That was certainly fun. And this sort of fun is certainly worth paying money for.
Sadly the connection where I spend a good amount of my time is very poor, otherwise Napster would have me sold. The experience worked.