Sure the graphics are not as good as a decent physical gaming rig that sits under your desk… but that's NOT what OnLive is trying to be! It allows me to play Windows games on my Apple MacBook Pro, even using an XBOX 360 USB controller that normally doesn't work on a Mac, or my wife's now old and very underpowered Windows laptop that these games wouldn't normally play on at all. They even have a piece of hardware that you hookup to your HDTV that comes with a gaming controller and you can play your games in your living room similar to an XBOX 360 or PlayStation 3!
I am not entirely sure of the delivery protocol they are using, but it must be homegrown and proprietary. It is obviously a real-time protocol like PCoIP from Teradici being used in VMware View, but it is NOT PCoIP. I haven't taken the time to analyze the bandwidth usage yet, but my guess would be upwards of 5Mbps if it is available. However, it does dynamically throttle itself, making the graphics a bit more lossy, in order to maintain good framerate and response times. Only when I was playing over WiFi in a horrible area in my house for signal strength did I see major degradation and stuttering… but the client also paused and recommended I get a better signal before continuing.
I think what I am most impressed with, considering that the actual game session is on a remote machine and all of the display data and I/O has to traverse the internet, is the responsiveness of my input through the controller. For instance, I was playing Dirt 2 and felt like the game was running locally because there was zero lag on any sudden input I made through the controller. If there was any type of delay the experience wouldn't work, so kudos to them for getting this right.
While I wish I had time to be a hardcore gamer, the reality is that I have a wife and five kids that need my attention when I am not working 40+ hours a week. The OnLive service allows me to be a casual gamer without shelling out a ton of money every year to have the latest and greatest gaming rig, and the experience is what I would classify as "good enough" for the minimal cost and the flexibility it provides.