My friend and I have been discussing this, and we think the biggest obstacle for OnLive will be the ISPs. The vast majority of broadband subscribers are simply not capable of 5 Mbps down that OnLive requires for full quality. True, many ISPs advertise higher speeds, but the realities of networks mean that you will rarely get even 75% of the advertised speed at best, and much less sustained. Also, keep in mind that the most popular broadband technology, cable HSI, depends on all of its subscribers using only a fraction of their bandwidth cap at any given time.
But then again, who knows what the broadband market and tech will look like in a couple of years?