The biggest problem I have with cloud gaming is the massive amounts of bandwidth it will gobble up. I currently have a mere 60GB, at 10mbit/s down, 1mbit/s up. I can fill that cap in under 2 weeks, just downloading movies, and playing stuff like WoW. If it goes over to cloud gaming, sure, we wont have to wait a few minutes for the game to update, but we will have to pay out the ass just for the bandwidth going down the drain.
Also, the quality would NEVER be as good, or even as good as they think it could be, because you would have to find a way to send all the large amounts of data pertaining to the video (which, for many people is 2+MP), audio (again, most everyone I know has AT LEAST a 5.1 or 7.1 surround system), and just the game in general, such as characters, and saves, and stuff.
Also, the cloud is just going to make it harder for people to buy games, I think. you'd probably need a credit card for the most part; something a 15 year old like myself cannot get, at least for another 3 years. Either that, or we'd what, have to go out and buy a card, including a key for the game? What about the people who randomly enter codes? Sure, they MAY have to be activated first, but what about people like me, who have an hour-long trek from Wal-Mart to my house? There's no guarantee someone could jack my code in that hour. And what if I lost that card? What would happen if somebody came and knocked on my door, and demanded to see my game card? I'd have nothing to show.
The entire concept is just a waste of time, money, resources... They should just focus on making computer games that aren't ports, and that play well before they consider moving everything to "the cloud."