More information on the attempt to clone the Thylacine can be found at the Australian Museum's website.
I have spoken with people who have either had views of what they consider is possibly a thylacine, or a large mammal (or traces thereof) they cannot identify, in Victoria. All these people are reliable observers who can readily identify foxes, cats and dingos when they see them. However, all video footage of purported Thylacines is either uninterpretable, or is patently a fox or dog. There have been no skeletal remains of Thylacines found in Victoria (at least from post-european settlement), and thylacine skulls are very distinctive. On balance, I would say that mainland sightings do not point to thylacines still living.
Apparently, they may have been brought over to the mainland by the various Acclimatisation societies that flourished in the middle of the nineteenth centuries. Amongst their many triumphs were the introduction of foxes, blackbirds, sparrows, starlings, turtledoves and mynahs to Australia, as well as the translocation of native species to other parts of the country: kookaburras to Western Australia, and possibly thylacines to Victoria.
On the matter of cloning, I think it will prove impossible to successfully clone a thylacine. There are a variety of reasons why, but chief among them are the impossibility of putting together a complete genome from the fragmented DNA - the thylacine foetuses were fixed in formaldehyde prior to being placed in ethanol, which causes damage to DNA. It may also prove impossible to correctly arrange cloned DNA into correct chromosomal order. If all this can be done, then there is the problem of having no suitable egg donor to place the DNA into (if one is found, it would still have the mitochondria from the donor species', meaning it would not be a true clone of the thylacine. And even if all this could be overcome, there would still not be a suitable womb to carry the egg.
(Having said all that, I am reminded of the expert who predicted that trains could not travel over 100 km/h because all the passengers would asphyxiate).
As to whether we should clone, I must admit I tend towards Michael Archer's (head of Aust. Museum) view that if we have within our powers to undo a wrong such as the extinction of the thylacine, then we must attempt it. The argument that if we can clone extinct species means we don't need to worry about endangered species going extinct, is akin to the argument that since we can perform liver transplants, we can drink all we want and not worry about the consequences, because "it'll be right". The worry as to whether or not it would be treated as a plaything is moot, in the face of so many endangered species that only survive because of captive breeding, and with so many species (bird and mammal) already kept for our pleasure. (and having offended all dog, cat and budgie owners, I'll shut up now)