This post by Michael Dolan at IBM is spot on:
Here's the thing, everyone who hears "Linux desktop" has a knee-jerk reaction and thinks of all the things they do on their own PC, laptop, Mac. The reality is you're probably not the target market for virtual desktops. The market is large desktop environments that have thousands (perhaps tens of thousands) of users and who are not doing consumer-oriented work (or shouldn't be). The cost savings of moving from physical PCs in a 1 user to 1 PC model to a managed model with virtual terminals can be significant. We'll see where the market goes for this model, but I know of a few very large companies that want to make this model very real. The economic situation and the impact on IT budgets may act as an accelerant.
Much of the time when I write about the evolution of Linux or the evolution of the client, I get lots of comments revolving around the lack of popular games for Linux or whether the GIMP can replace Photoshop. And, of course, the partisans for whom it's important whether Linux "wins" or "loses" to Windows or Mac OS X jump in with their various ideological objectives.
Idealogues and fanboys aside, however, part of the problem is terminology. "Desktop" gets used to refer to at least a couple of different things. One is the traditional, general purpose PC as we've come to know it over the past 20 years or so. The other is a shorthand for any client device with a keyboard and monitor. The former is a "fat client" with all that implies for a broad range of hardware support and available applications. The latter is more specialized. It may run only a limited subset of applications. Or it may run primarily network-based applications through an interface, such as a browser. Whatever the details, it's effectively much thinner--whether or not it's actually a thin client.
I'm not going to argue that Linux can't function as a reasonably general-purpose PC operating system. For example, developers who want a desktop, or more commonly a notebook, that runs Linux have lots of good distributions to choose from that (mostly) install straightforwardly. Ubuntu is a current favorite. But that's not mainstream mass market. And for reasons that I've gone into previously, such as the dynamics of independent software vendor support, I never expect it to be such if we're talking an operating system in today's Windows or OS X mold.
But the way that we access applications is changing. Many clients are predominantly platforms for browsers or they serve a very specific purpose. Virtualization could also change how we run an operating system or systems on our PCs and other devices. In short, there are plenty of roles for Linux on the "desktop," but it's not the desktop as we've historically known it.