I think the problem is that if I'm playing a FPS on Onlive and playing against you, say in Counter-Strike, and I have an extra 150-200ms lag and you don't, then I lose. Coop and multi-player play in Onlive sounds terrible.

For single player games, yeah, you're right, a person can handle 100ms or so, but that's mostly because he isn't playing against anyone else and the game is designed to handle 100-150ms delay. It can handle an extra 100ms or so from Onlive without too many issues. Its not pretty, but it works well enough.

I do agree that spikes and lost packets are the most noticeable issue, but even if you eliminate or minimize those, you still have the coop delay problem.