The idea for a telescope on the moon is not new. There are advantages to a telescope on the moon. First, there is gravity, which makes the telescope design much cheaper than for space. Second, the moon is a stable platform. The gyroscopes that have caused headaches for the Hubble Telescope would not be needed -- a lunar telescope can point at a given point in space for years without needing any power or pointing at all. Finally, the lunar telescope will give our astronauts exploring the moon as part of NASA's Moon-Mars project something to do on the moon.
A lunar telescope would likely not have a glass mirror, like most telescopes on Earth, but a liquid mirror, like the Large Zenith Telescope in British Columbia, Canada. This mirror works by spinning liquid mercury in a large dish to make a thin layer in an exact parabolic shape. Many of the problems of such telescopes on Earth, such as the wind distorting the mirror, will not be a problem on the moon.
There are a few potential deal-breakers on a lunar telescope. First, the moon is a dusty place. There is some evidence that the moon may actually have an atmosphere made of dust. Obviously, you don't want dust landing in your liquid mirror, because you'll have to clean it! Second, a liquid-mirror telescope can only look in one direction -- up. If we build a telescope near the moon's north pole, we can always look at almost the same patch of sky. There are advantages to this, but if there is something we want to look at elsewhere in the sky, too bad!
With NASA's decision to go back to the moon and to Mars, the idea of a lunar telescope is being revived. Stay tuned!