OK: Here's what I've learned.
As far as the music being in the cloud is concerned, it makes no difference in Photos but *does* make a difference in iPhoto. That is, if I download the music to my MacBook Pro it will show up as playable in iPhoto but not in Photos. So iPhoto clearly knows nothing about music that's still in the cloud.
As far as the issue of digital rights assigned to the song, I guess you must be right. I found an audio file I'd recorded of my voice using Audacity (and saved as an unprotected MP3 file) and it showed up as usable in Photos. That nothing else is -- especially since the same ****** files appear to be usable (if downloaded from the cloud) in iPhoto -- I find incredible. I can't use my own iTunes music to accompany a slideshow I made for a family reunion?
To add insult to injury, I know at least *some* of my iTunes music is stuff I ripped years ago (and deliberately had iTunes convert to unprotected MP3 format) from CD. I can only conclude that thanks to the miracle of the cloud Apple doesn't bother backing up my locally ripped music. Instead, it must look at the file's digital fingerprint and assign its comparable, fully protected AAC version in the sky to my account.
And then not allow me to use that file in a slideshow at a family reunion.
I guess Apple's come a long way since Steve Jobs had to convince the record labels to allow him to sell their music as files on iTunes. Now Apple is diligently protecting the record labels from the copyright-infringing intentions of its customers. Even if copyright infringement means playing music for free in front of a small gathering of relatives.