Porticor's Homomorphic Key management paper1 is now released. So that answers the theoretical feasibility question.
The other commenters are correct when they say - the mathematical technique used is Partially Homomorphic Encryption (PHE). Porticor applies this to encryption keys, in order to encrypt the keys in the cloud, rather than the masses of data.
A technical analysis and proof is paper2
An extension of the technique beyond the "semi-honest" model, so it still guarantees security even in cases where the attacker has subverted code on some of the participating servers, is paper3.
All documents are available online, the first and third are actually from the USA patent office.
In summary, the second (analysis) document contains a series of proofs (mathematically rigorous) that support the method. They
show the approach is rigorous in the semi-honest model
describe a concrete construction of the protocol based on El-Gamal as the Partially Homomorphic Encryption system
describe secure protocols for creating "appliances" in the cloud that can participate in secure key management
describe secure protocols for creating new storage objects and protected items (which could be specific keys or secret phrases)
analyze these protocols in the semi-honest model and rigorously prove that they are secure
notes that the approach can be extended to the malicious model: the "protocol enables its compilation so that is secure even in the malicious model. This can be done with quite reasonable performance overhead, using the same cryptographic primitives". This construction is not provided paper2, but it is available in paper3.
So, in sum, the answers to the questions raised above are:
A. yes, it is feasible and indeed efficient and concretely implemented.
B. it works for both semi-honest and "malicious" threat models.
C. because it is based on partially homomorphic encryption, it is quite efficient
Of course, fully homomorphic encryption would be even more secure but slower performance. The protocol offers a good balance between performance and security. This is now based on several years of experience with the implementation.