Ok I figured it out for my machine which is running Lion.
For reference:
I had the problem where I could check Contacts udner the iCloud preference pane in system settigns, but once I closed it and came back later it would be unchecked. Also in the accounts section under preferences in Address Book, iCloud was never there and I could not add it. Sometimes when I tried it would tell me that the account was already created, even though it was not there in the list and no contacts were in my address book.
The problem turned out to be the way I was syncing before iCloud. I was using Dropbox and a symlink to keep my contacts in sync across my macs. If you were using any syncincing solution I bet this is the source of the problem. My solution basically rebuilds everything associated with address book, so make sure to back up.
Here is how I fixed it:
1. If you have any local contacts on your mac you want to keep, make sure to back up your Address Book: File > Export > Address Book Archive
2. Quit Address Book.app
3. In the System Preferences window go to iCloud and uncheck Contacts. If it ask you wheter to keep things or not say no.
4. Get the Finder task bar at the top and choose Go, the Go to Folder.
5. Enter ~/Library
6. Then delete the following folder: ~/Library/Application Support/AddressBook
NOTE: Mine was not a folder but a symlink (looks like an alias icon)
7. Restart
8. Go back to the System Preferences iCloud pane and recheck Contacts. Choose merger if it asks.
9. Wait a a min or two for it to DL all the contacts
10. Open address book, it will take a second as it has to rebuild the Library files you deleted.
Hopefullty there are your iCloud contacts.