5 years from now games companies will be bragging our their cloud power number.
Digital Foundry will be running network analysis to see how many servers you are connecting to and who has the best implementation.
it'll be the new 1080p
GAF will be all like
"Eww my eyes, I can't physically play a game that only runs on only 48 clouds. Gross"
"48 clouds lol"
"DAT 64 clouds! I can't wait to play this game!"
Lol, no way will it play out like that in 5 years, not even close. Handling CPU based physics and handling other areas of graphics or the rendering pipeline are two entirely different things. Latency sensitive graphics rendering is the problem area, and the area where hardware, along with internet connection, financial viability and scenario reliability come in to play.
Even the recent Nvidia cloud based lighting demo highlighted this. They needed a GeForce Titan in every server (imagine the costs!), and even then only to aid in indirect lighting. They concluded that it would not be viable for things like Shadow Map Renders, Direct Illumination, Composites, Post-Processing etc. Remember, some of these elements of rendering are things that are latency sensitive for a reason, rendering at speeds that are orders of magnitude faster than what your internet bandwidth could provide. Cloud computation for graphics rendering or video games is definitely going to be a thing of the future, but it's advantages are likely going to remain specific and limited, at least for the next decade or so.
Then there's the financial aspect of it. Microsoft are doing this with Crackdown because they have the servers readily available to leverage. That will not always be the case, not if every other game is using them, especially games that are hugely popular. There's a cost to those servers, and running them, and the fact that using them means they cannot be used elsewhere. When game manufacturers aren't even willing to eat the cost on console hardware itself, you really think they'll be happy to eat the cost of countless servers just so we can enjoy some better AI, physics or whatever else? I can't see it being mass feasible.