I used VidZone for about an hour on the day it was released, just to check it out. I've fired it up a couple of times since, just to show friends what it is, but I'm just not interested in it. I didn't find it very user friendly and the videos aren't good quality when viewed on a big HD TV - in fact many of them look downright awful. It's also kinda funny when you see PS3 fanboys write off additions to Live such as Last.fm by saying "you can get that through the PS3's browser" (even though they don't seem to understand the concept of integration), but you can watch music videos through the PS3's browser as well, so what makes VidZone so different? I agree with you about the overall popularity of music videos too.

I can't see me using Last.fm much either. I use it a lot when I'm working at the PC, cos it provides background music, but I only really turn my 360 on to play games. From the previews I've seen, it looks like MS have done a good job of integrating it into the dashboard, but I would only use it a lot if you could use it like the custom soundtracks feature to replace the background music in games. Maybe they'll add that feature in a future update. I don't use any of the social networking aspects of Last.fm, but if you can access those through the 360 then maybe some people will find that useful.

^^I will not be using Last.fm much either on the 360, mainly because I have a Zune Pass and I can stream pretty much any song I want. But also due to, as you said, not being able to use it in the background.