All very good points. As for the copyright issue: The problem is that if the artists keep the copyright, the distributor is not allowed to make money from the artist's work, or the artists could just decide to pull the music from the website which would be a pretty serious issue for the webmaster. So in a sense, having to give the copyright to the distributor isn't in the contract so the distribution-site is the only place the music could be downloaded from (although it would probably hurt the revenue if the work could be downloaded from other places as well), it's mainly there for stability reasons. I must admit my research is a little premature, maybe some other form contractual form would work better (as long as the artist's work is guaranteed to stay on the website).
I agree that people's willingness to pay for legally downloadable work from Radiohead probably doesn't compare to their willingness to pay for content created by amateur musicians. There would have to be some sort of quality control as well to at least make sure that the quality of the content would be worth paying for :)
Anyway, it's all pretty complex. The concept is starting to sound more and more like a record label than an actual distribution network. Although it would be interesting if there was a label that would offer it's music for free, just to see if it would trigger a reaction from the bigger labels.
Thanks for the feedback guys