Latency is not actually the largest problem you encounter when setting up a system like this. Now, OnLive has the problem doubled due to their generally terrible datacenter model (a few very large datacenters), since this increases the average distance between customers and the server. But raw latency still not the most difficult problem to solve. A low-latency target does make a lot of already-existing problems worse, however.

(Disclosure: I work for Gaikai. Ask me anything and I'll try to answer.)