So they're basically saying the same things that EA said for Sim City, and which, for Sim City, turned out to be a sack of lies (almost none of the game logic runs on EAs servers and it'd be entirely pointless if it did because SC requires a beefy machine anyway). OnLive, on the other hand, has been doing it properly for a while now, with some, but less than stellar success. Microsoft is in a much better position to deliver on the premise than either of these, but I remain unconvinced.

The basic question is, is it more efficient and overall cheaper to have #(max. concurrent clients) times the hardware running in a hosted (remote) environment than having #(all clients) times the hardware running locally. Clearly #(max. concurrent clients) is much lower than #(all clients). MS, as the owner of the platform is in a pretty good position of balancing between thin and thick client and forcing developers to work within this model, ie. making the client thin (read: cheap) enough that critical calculations need to be done on the server but thick enough to run some latency critical stuff and probably some of the rendering on the client.