Indexuniverse has an interesting article on in-cash ETF share creations for muni ETFs as opposed to in-kind creations. The article attempts to explain how in-kind creations can help to eliminate ETFs trading premiums in cases where the underlying securities are relatively illiquid.
The following figure shows the trading premiums of the two types of ETFs.
Clearly allowing cash creations helped to reduce the trading premiums.
It sure looks like there is yet another factor to consider when purchasing ETFs, especially if the underlying assets are illiquid.