I beta-tested OnLive a long time ago, and by the third day it was back in the box, ready to be shipped back. It took a long time to pre-buffer a game. The game prices were too high. The resolution wasn't that great, and it didn't have most of the games I actually wanted to play.
A company with an existing revenue stream could get into this market and support the initial losses with their other products. Valve/Steam could do this. Valve already has an existing profitable business model (digital distribution of games on PC/Mac). They're branching out into distribution of apps. They already offer Steam on TV. But I just don't see the draw yet. A decent, $500 PC can run most games on acceptable settings. A gaming console is only $300 and there are tons of games available.
I can see something like a hardware add-on that does game streaming, but both Sony and Microsoft (XBLA) offer game and video downloads. So I'm not quite sure where a dedicated game-streaming device will fit in (and be profitable). If I wanted to spend $50 on a game, I'd get it for PC or a console and have a much better experience.
I don't think the market for something like this will happen until most of the US has affordable, reliable, and reasonably fast (10 mbit+) internet. And when it does happen, I think it's going to be a side-market by an already-profitable company.