From the technical FAQ page
"Latency is the technical term for "lag", and high latency may result in you experiencing a slower than normal response from a game when you press a button or move a joystick or mouse. Because OnLive games run remotely from your home in an OnLive game data center on game servers, even though your communications to the OnLive data center is at almost the speed of light, there will more latency than if the game were running on the same game server in your home. OnLive technology was designed to keep that latency as low as possible, hopefully to the point where you don't even notice it, and at this stage in OnLive's technology evolution, most OnLive players report that they experience no latency or acceptable latency. But, some players will find the current latency unacceptable in some games. With further development, we know we can reduce the latency further, but you should decide for yourself whether OnLive's current latency is acceptable for your gameplay needs, and the best way to find out is to give the OnLive Game Service a try and play a few free demos."
Latency matters primarily in FPS games, but I'm curious about their patent pending video compression... it might work. I'd like to note that although it won't work on everyone's internet connection, but someday it will, and they're getting in the market early, which is smart.
Most the naysayers here have no imagination what will be possible in the future and make judgments about something they haven't tried, only what the imagine in their very limited minds.