Well, this is an interesting turn of events. I could have sworn this was done back in the 16-bit generation for the Sega Genesis...It was called the Sega channel if I remember correctly.
I'll just assume you already used the link and read the article by now. Yeah, sounds like pretty bad execution of a good idea to me. I still remember having the sega channel add-on for the genesis. it was about as big as the 32X add-on, it had a nice menu that sorted hundreds of games by genre. sure, It only had genesis games. but OnLive only had PC games too. oh, and you didn't need to still buy the game if you wanted to play it multiple times.
I used to think Xbox live was a bit of a rip-off, but this? come on! they're charging a subscription fee for DEMOS! Yes, you can get the full games too...if you buy them. But in that case, you're better off just buying it in a store (or on steam). the exception to this is possibly the games made by EA, since they may decide to not install SecuROM.
Another problem pointed out in the comments was the fact that some ISPs limit how much you can use your internet each month. the Sega channel operated independantly, leaving your internet free for...well, internet!