iTunes really is baffling and in dire need of a Photos-like redo. Call it Music for consistency and make it brand new made for both kinds of people, the ones who keep everything local and the ones who only stream. Make it handle music like it does photos where music I add on my MacBook, it syncs to my iMac and iOS devices without fail. Play counts update without fail. And those damn Love flags actually stick. (Seriously. Those fucking hearts have a goddamn tendency to disable themselves. I've Loved the same songs numerous times even though I sync religiously, which is something I shouldn't have to do because this is the Cloud age goddammit!) Let's face it, if anything, they're going to go the iOS route and split stuff up. iOS has separate Music and Store apps. They'll do that on OS X too. Podcasts can be separate too. And as you mentioned, it should fucking sync correctly FFS. And at least if people prefer to use different Podcast options, they could just use a properly built OS X app too. Music should only have music in it. Music, Radio, that's basically it. And all syncing should be done automatically with options for what to sync elsewhere. Backups on Cloud, with an option to still force a local backup. Maybe too much to ask it just cache a local backup from the Cloud version. Apps wouldn't even need a place on the desktop since they don't run there. Purchasing apps could just be done on iOS maybe? Or if anything, put the App Store part in the iTunes Store app. Or just put iTunes, App and OS X Apps all in the same App Store on OS X. (A newly redesigned App Store please. Goddamn what a terrible app.) Yes I know some of this stuff happens through iTunes Match. And if they want to lock iCloud Music Library behind it, then fine. Keep the option to only sync locally if needed.
Is it too much to hope Apple has had a secret team working on it like they usually do? If Apple really wants to make iOS and OS X a unified experience, iTunes is currently the worst part keeping it from happening.
But there remains the Windows problem. How do you handle Windows? Make identical apps and install all of them on Windows? (This option would let Windows users choose which parts to install. So they could keep the Store off if they don't want it.) Or make a new all in one app just for Windows? I think if they go the former route, it would be better because with the syncing stuff, most Windows users might not even install most of the apps. A lot of people stream anyway, so no need for the store, plus with syncing, they could just use their iPhone to buy music and not even bother with a Windows iTunes Store. (The Windows store app would of course not have the Mac App Store part. Just Music and Apps.) It would actually make it a bit easier.
But then there's the storage issue. Say a user only has their 5GB on iCloud. If their music library is too big, what happens? How does iCloud handle Photo Libraries that get too big for the cloud? I mean $1 is nothing really. But really they should just offer 20GB free instead for people who use iCloud Music Library.