Yup. In fact, some groups are looking to push this solution even further, so that all the game processing/rendering takes place on the server:

http://blogs.amd.com/unprocessed/2009/03/27/server-side-rend...

It sounds like they still have some issues with latency and bandwidth to work out, but not all games need low latency. And this solution neatly solves the piracy problem -- even for single player games -- as well as eliminating publisher concerns over modchips, game resale, and client-side hacks. And it has much lower client-side hardware requirements, too, so you don't need to worry about who has what console.