Normally, if you want to license windows client OS for virtual desktops, every user has to obtain a VDA license. This Licesne is a subscription service that would cost OnLive about $100 a year (without taxes etc.) for every user. So the most probable scenario in order to comply with Microsoft, would be to transfer that cost to the user's subscription. What probably happened was that OnLive probably did not have those licenses for every user and probably did not want that extra cost on their service.
On the other hand, sending desktops remotely from Windows Server, requires a Remote Desktop Services license for every user (on-off purchase, no subscriptions), which is a lot cheaper.
Of course working with the Server desktop is not recommended, for functionality and security reasons, but it seems that OnLive did not like the alternative.
Microsoft is putting a big obstacle in virtual desktop implementations with this subscription model and a lot of companies and users worldwide have complained. This leads to many companies not using these licenses and just hoping never to be audited. IMO, Microsoft should just put virtual desktop rights in every windows license and stop asking for money every year. The whole point of setting up virtual desktops, especially in a large scale, is that is a hell of a lot cheaper than buying the equivalent number of actual PCs.
There are a lot of free versions of Hypervisor software these days (even Microsoft's own Hyper-V), servers are cheap and powerful, thin clients also. The only thing that messes up the whole model is Microsoft's VDA Licensing...