Who said the database needs to be "in the cloud"? It just shouldn't be on the same machine as your users.
I don't ask my users to install Visual Studio, IIS or Windows Server 2012 on their boxes. I kind of think asking them to install SQL Server is similarly foolish - particularly since now you have to pay for 1 SQL server licence per user rather than 1 per organisation.
I say "The Cloud", but what is that really... it's a marketing term for a server on the Internet (or some network) providing some kind of storage or service.
And again, I think it comes down to application. I'm not talking about apps that need full blown server products, IIS, SQL Server, etc. that share data across multiple users or need to be accessed from multiple machines. I'm thinking SQL Express at a maximum but more likely SQL Compact (when run local, it can be deployed easily and there's no need for IIS or other needless middle men).