I've gotten the SD card setup without much trouble, but I read some horror stories of others. For those that are not tech savvy, but want to be (aka, basically the original target demographic of the Pi), a very simple BIOS boot ability that can retrieve an image from the internet and setup the card all on the machine would be ideal. Not sure how difficult this would be (might require extra real estate or RAM that is not available), but it would probably take the Pi to a new level of marketability.
The Foundation would determine the "default" OS to be installed. Remember, this is for people who need direction, so making decisions for them is what they want. Anyone capable of imaging their card can put whatever they want, but for newbies, this would offer a less scary way to start out, and an easy way to recover from bricking the device. My thought is that if the device is powered on without a card, it looks for ethernet, pings the server, then displays a screen saying, "no OS is available, to create one, insert an SD card. All data on the card will be destroyed. To cancel, do not insert a card, unplug the device." This way, no keyboard is needed, just a screen. You may not even need a screen, if it could blink an LED in a particular pattern, letting the user know it is ready for a card, then blink in a different pattern when complete.

