I don't know what kind of algorithms last.fm uses for the similar artists radio, but it must be somehow based on Bayesian statistics (what else?) and some tags. I have tuned into "Similar music to Zero 7" which I really love, but my ears were bleeding. I liked maybe 5% of the music, that was played and it ranged from pop, indie, rap, rock! Zero 7 would rather be tagged electronic or lounge. This is one of the reasons, I stopped using this service and chose to tune into some real webradio stations which are dedicated to a certain style. I can really recommend
- swissgroove (groovy funk, jazz, lounge)
- luxuriamusic (funk, easy-listening, make sure you get the mp3pro plugin)
- stylenetwork house