From what I've tried (not that much though) it works great. But yeah, if you need more than the available cloud storage space you're a bit out of luck.
Although you could use SkyDrive itself for pure storage, I guess, if you realy want to keep a cloud storage for this purpose that is.
Although that isn't what syncing is about, mainly. Syncing should be thought of primarly as a PC-to-PC service, not PC-to-Cloud and Cloud-to-PC. When you do PC-to-PC you have virtually no limits at all (although there is a (huge) filesize limit iirc).
(tbh, not a very big fan of permanent storage/syncing either if I compare it to having a 32GB stick with me, which is gazzilion times faster and no need for an (fast) internet connection)....
On the question why everything isn't just one big space and you can choose how much you use of it for what purpose, they said something in the line that it isn't as easy as that: The different services which connect to SkyDrive all need their own bits and bolds, security setups and have their own data centers (to keep things smooth and secure). If there was one huge space it would mean they need to scale everything up to all the data centers, making the backbone a whole lot more complicated and would probably require a whole lot more work, resources, etc, not to mention security issues... So yeah...
common cost/effectiveness again.
Also equally important: you do not really get like 25GB physical space on SkyDrive either. You are actually given like slightly more the space you're using (up to 25GB or whatever the limit is at that point). Space you don't use is actually used by other people. This makes that MS doesn't need to physically have '25 x AllTheWindowsLiveUsers
' GB on their servers.
Which is also the exact same model that every other company which offers 'space', from big to small, uses.
From what I've been told (and can remember) this is also part of one of those reasons why their is an individual usage limit per service which uses SkyDrive.
So, if there wasn't a sane limit for PC-to-Cloud sync then the 25GB of storage per user would fill up in no-time. And it is almost impossible to give everybody really 25GB of physical storage space. MS doesn't have that amount of storage on their data centers. It would also be impossible to keep something like that free, not with the amount of Windows Live users. So don't hope for 25GB of storage for Sync though.
But yeah, nevertheless, it would be über cool if everything was just one big space where you could use whatever space you want from it for whatever service. But I don't see that happening anytime soon though.
Although a bit more than 2GB for pure cloud storage might be welcome to a very small (!) number of people I guess.
I say "very small number of people" because it was also shown to us on the last MVP summit in februari that the vast majority of people never use anything more than a few hundred MB of cloud storage for Sync.
I'm more worried about the lack of XP support in the near futur though. Because unlike Messenger where people on XP would probably still be able to chat (using an older version that is), the word is that XP will not be supported anymore after a while in the syncing 'protocol'. Dunno what is true about that or what not, but yeah...
This might be of interest and might answer some basic questions: