iTunes 11 doesn't remember to show cloud purchases
I had this exact problem so I telephoned Apple support and the first thing they told me to do was to check the same setting on my other devices. I discovered that my iMac had the option in preferences un-checked and it seems that this was over-riding the option on my MacBook Air. 

This has worked for me, so I suggest that you check the preferences on any other devices you have and make them all the same. This is probably a bug that Apple need to sort out because if you want the option on one device but not the other then you will cause the conflict.