Well, the pros are it's an easier operational model for MS; no more worries about users doing things with the OS you don't like or downloading illegal files. You never have to worry that someone will replace their copy of Windows with Linux, or will try to run an old or unvalidated copy of Windows itself. Since they physically own all the data they'll just discard anything they don't care for (Non-DRM MP3s, porn, software without a current license, etc.) with the entirely reasonable explanation that they're now also on the litigation hook for anything problematic a user might install. Hardware standardization takes the next logical step since users will increasingly be isolated from the meaningful bits of hardware, same with applications.

The cons? Well, if you're MS there are none. If you're a user... you would have to be completely out of your mind to start down this path. The Chinese government will no doubt love the idea as well (And, I hope, pirate it with astonishing efficiency once it becomes possible).