> if your ping is 5ms.
Who the hell has a 5ms ping? Most home connections are DSL or coax, both adding lots of overhead and latency. DSL/VDSL is especially bad. My u-verse ping to the nearest cdn mirror was something like 20-25ms. My work comcast is slightly better with a 10-12ms to a local cdn. When I had residential comcast, I had probably double that. And that's ignoring all the overhead Onlive puts in.
Sadly, onlive would probably clean house in the age of to the home fiber. Maybe 5 or so years from now that service would be more common, at least for gamers. This, of course, means that Onlive would have to deploy servers to every 5-10ms distance. So your typical metro region would be broken down into a few dozen zones, each with its own onlive server, game library, etc. It sounds like a cost nightmare.
I think the onlive guys said that 50-150ms is doable for most games and sold a service that worked well with non-FPS games. The problem is, gamers are FPS obsessed and that level of latency is a killer. That's on top with games being cheaper than ever. A plain-jane PC can get on Steam and buy on-sale games for next to nothing.