Even if they have that part of it sorted out, I still don't see how it'd work with most people's internet connections. I personally don't know anybody who can stream 720p video at 60fps which I think the OnLive folks have said they achieved and surpassed. I mean, I've read some previews of the service where they said it worked, but it was being demoed on a computer not twenty feet away from the server over a gigabyte network connection. Definitely more of an ideal setup than is practical.
So the user inputs a command, the command is sent to the server side of things where the game is rendered and the command is carried out, then the video is encoded or compressed or whatever, and it gets sent back to the user where it is decompressed? How is that even possible? The lag would be horrendous. How much would this cost someone whose ISP has bandwidth caps?
This thing stands no chance.