Quite frankly, the two services each do different things very well, although there is some overlap. Pandora is great for discovering new music based on what you like. Last.fm is also good at music discovery, but you can’t stream music directly from their site.
Where last.fm really shines, though, is in tagging and discussing music with friends. Because of the social aspects of Last.fm, a lot of people like storing and tagging their favorite music there.
Well, for those hard core users of both services, Real-ity.com has created something of a mashup (you will need a last.fm account to use this) – a clone of the Pandora player running on their server, with a script to submit any track directly to your last.fm account for later tagging, etc. The site will auto-determine the song and artist, although users can edit that information before submitting to Last.fm.
It’s rough, but it works. And it shows the power of users in the new web to manipulate services to do things that the owners may never have contemplated.