I personally tried OnLive, and I found it insufferable. The image quality was bad for one, but I know that'll be fixed as bandwidth improves. Input lag was a nightmare, however, and until we can create a wormhole from my PC to OnLive's server farm, that isn't getting fixed.
Whilst you have a point, a lot of people say a lot of stuff about gaming's future, and many of them purport to tell you the wonders of the one true future of gaming. Most of them have something or another to hawk, mind, so don't trust them.
So okay, maybe I over exaggerate a bit, but industry insiders aren't always the most trustworthy people when asking for a quote. They usually have some sort of related product to hawk (example: David Perry thinks cloud gaming is the future, and he just so happens to be with Gaikai -- he also said MMOs were the future and made a lot of shitty ones that lost his publisher a fuckton of cash). And whilst I think Jaffe is almost certainly more sincere than most of the shysters chiming in on gaming's future, he's also pretty frank when he says he doesn't actually know what's going to happen. He thinks the cloud stuff is going to happen, but he doesn't seem to be basing it on any hard facts. He just thinks that technology is pretty swell and can see it taking off, or maybe he just realises the people in the suits want it to go that way so they can have more control over the product. Whatever.
Personally I hope he's wrong, because I don't really like the idea of giant centralised monolithic entities on the Internet. It kind of goes against what the Internet is: a distributed and robust network. I find it bothersome when Facebook or Google or MS or whoever tries to get its tentacles in every website in the form of "+1 this!", "Tweet this story!", "Like it on Facebook!", "Spin it about your ass in Bing!", or when everyone says that everything in my life will be stored on the cloud and that one day I'll have to pay some corporation a continual stream of money just to do computing tasks because my PC will be a hobbled decoder with an Internet connection, and it kind of perverts the distributed and open nature of computers the Internet because a few rich companies control it all.
It's not very robust, either. If your provider of something or another goes bust, you probably lose access to all the stuff you invested your money into. People tell me OnLive has been pretty crap lately as far as new releases go. They've promised stuff and haven't delivered (such as The Witcher 2), and things seem to be going downhill, especially after MS pissed on their parade in regards to running MS Office. In fairness that was a dumb move, and made it look like the idea was thought up during amateur hour, but I'm really not confident those guys know what they're doing. It seems like they desperately wanted someone to have bought them out by now. I'm dreading the meltdowns from some people who have invested serious coin in ether games if the service kicks the bucket.
In my view, cloud stuff (especially gaming) is probably an expensive bubble waiting to burst, and I think we're getting to a point where storage is cheap (and getting cheaper), hardware is cheap (and getting cheaper), and that cloud stuff -- again, especially in the gaming realm -- is a solution to a problem we had about ten years ago, when PC gaming was mega expensive, we had tiny fucking hard drives, the internet was shit slow, and few people could afford to build or buy their own gaming system. I think we're passing that point pretty quickly.