I use Live Mesh primarilly (tho not solely) on a LAN, where all the PCs have access to one another. I'm loving Live Mesh since it lets me take my laptops out of this closed environment and onto the road without having to change my workflow.
One thing I've noticed however, is that even when all the computers are in the same subnet, have the same workgroup, and nothing blocking direct connections, Live Mesh insists on uploading to Live Desktop then on the other computers downloading back to the computers.
This makes the updates EXTREMELY slow since it's relying on internet speeds. It would be nice to add direct P2P discovery so that when 2 Mesh computers are on the same network, they can trasmit at full speed across the local network. I know this is possible, as most games, and many utility programs already do this (uTorrent and Azureus both comes to mind)
There is a pending feature request to allow you not to have to sync the data with the cloud, this is discussed in the following thread: http://forums.community.microsoft.com/en-US/LiveMesh/thread/a444a88f-0a3c-436a-9f1e-a4cd90adcc14. It also discussed if you go over the 5GB limit your additional data will just go P2P and not sync with the cloud which appears to be what you are looking for.
Thanks,
-Steve
Steve Linehan | Infrastructure Architect | Microsoft Developer & Platform Evangelism