Suggesting that using public key encryption (never called 'PKI encryption' -- please look up acronyms before using them) is better than symmetric key encryption for storage in a data center leads me to believe that Gulri isn't qualified to make statements regarding security. The assertion that public key encryption (PKE) is better than symmetric key encryption (SKE) is a fallacy of security. Each has its use.
In both cases (at least the way Gulri described it), the data center operator has the key needed to decrypt the data, regardless of whether that is the private key or the shared symmetric key. The difference is that with a symmetric key, the person encrypting the data can *also* decrypt the data. Perhaps Gulri thought this is a security flaw, although it's obvious that the person/device encrypting the data has access to the unencrypted data anyway.
Furthermore, the data is encrypted twice before it's stored in just about any reasonable implementation. It's encrypted the first time as it travels over the Internet. Most implementations use TLS (the successor to SSL), which takes advantage of PKI to verify the identify of the server and generate encryption keys, but actually uses a symmetric cipher for data transfer.
Once the data is decrypted on the server, it is then encrypted again using a new method such as symmetric key encryption and stored on disk. If we were using PKE, this would mean that the server saving your backups wouldn't be allowed to read the backups already stored on disk. If you thought the server saving the backups were more likely than the one reading them to get hacked, then PKE would have a slight advantage. Keep in mind that this would also prevent that server from storing partial backups or 'deltas' since it wouldn't know what is already stored.
It also doesn't matter at all for 'the privacy and security of each individual user' if the server uses PKE or SKE to store the data on disk since a different key pair or key is going to be used for each user anyway.
So when is PKE useful? When you want someone to be able to send you something securely without having to exchange keys ahead of time. Let's say I want anyone to be able to send me documents that only I can open. I can post my public key in a location that people trust, and they can use it to encrypt documents to send to me, even if I never communicated with them before. With symmetric key encryption, I would have to arrange a way to exchange a new shared key with every sender. There are, of course, many other use cases, but they almost all involve being able to communicate securely with people you've never communicated with before.
Finally, I have no idea what S/MIME has to do with the security of cloud services. S/MIME is a great technology that relies on PKE to send emails securely from one person to another, even if you don't trust any of the mail servers. It also makes sure that even if those emails are stored on a server somewhere, only the intended recipient can decrypt it. This technology applies to any email platform though, and really has no more to do with iCloud any more than it has to do with Hotmail, Exchange, or any other email platform.
