I just found that David Aiken, a windows azure developer and evangelist, wrote a cool article about how to use Memcached in Windows Azure through the new feature Azure Plugin.

http://www.davidaiken.com/2011/01/11/windows-azure-memcached-plugin/

I think the best solution for distributed cache in Azure would be the Windows Azure AppFabric Caching but since it’s only in CTP and avaiable in the US data center David’s solution would be the best. Only one thing I’m concerning about, is the stability of windows verion Memcached.