This has the same problem as existing personal data storage appliances and such...data redundancy and reliability is a really hard problem to solve by non-technical users.
An appliance, to be really reliable, needs to automatically store it's data somewhere else...like, say, a central backup service run by the company that sold the device. Oh, but now a central company has all your private data. Oops.
What about allowing you to "link" with other peoples "appliances". i.e. family and friends. This way they can back up your information too (encrypted of course, so they can't actually read it). And you only link to people you trust, which should mitigate some of the risk.
It becomes a case of who do you trust more, your family and friends - or a company somewhere. Besides, your mostly only storing information you want shared with family and friends anyway - otherwise why are you putting your info on this device in the first place?
edit: if I wasn't clear, the backup would be an automated thing. Only backing up information on peoples devices who are allowed to see it anyway.
This is ameliorated by commodity nature of os software: Backup to your pc, or to a provider like mozy, or to a friend's node as the other response mentions. Encrypt your backups while you're at it. This system gives you the availability of saas combined with the "this is my f%^king data" feeling you get when you carry everything around a thumbdrive.
An appliance, to be really reliable, needs to automatically store it's data somewhere else...like, say, a central backup service run by the company that sold the device. Oh, but now a central company has all your private data. Oops.