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This paper presents a critical review of a number of popular methods that have been developed to retrieve cloud and precipitation properties from satellite radiance measurements. The emphasis of the paper is on the retrieval uncertainties associated with these methods, as these shape future data assimilation applications, either in the form of direct radiance assimilation or assimilation of retrieved geophysical data, or even in the use of retrieved information as a source of model error characterization. It is demonstrated throughout the paper how cloud and precipitation observing systems developed around seemingly simple concepts are in fact very complex and largely underconstrained, which explains, in part, why assigning realistic errors to these properties has been so elusive in the past. Two primary sources of error that define the observing system are highlighted throughout: (i) the first source is errors associated with the identification of cloudy scenes from clear scenes and the identification of precipitation in cloudy scenes from nonprecipitating cloudy scenes. The problems of discriminating of cloud clear and cloud precipitation are illustrated using examples drawn from microwave cloud liquid water path and precipitation retrievals. (ii) The second source is errors introduced by the forward model and its related parameters. The forward model generally contains two main components: a model of the atmosphere and the cloud and precipitation structures imbedded in that atmosphere and a forward model of the radiative transfer that produces the synthetic measurement that is ultimately compared to the measurement. The vast majority of methods developed for deriving cloud and precipitation information from satellite measurements is highly sensitive to these model parameters, which merely reflects the underconstrained nature of the problem and the need for other information in deriving solutions. The cloud and precipitation retrieval examples presented in this paper are most often constructed around very unrealistic atmosphere models typically composed of just a few layers. The consequence is that the retrievals become too sensitive to the unobserved parameters of those layers and the atmosphere above and below. Clearly a better definition of the atmospheric state, and the vertical structure of clouds and precipitation, are needed to improve the information extracted from satellite observations, and it is for this reason that the combination of active and passive measurements offers much hope for improving cloud and precipitation retrievals.