You obviously didn't watch the video at all. While you're being an asshole about the idea, the guy presenting during the presentation covered all of your strawmen.
1) "fill instance of the most powerful PC you can throw at it" - Uh, no. When you move from workstation class hardware to server hardware, the "ceilings" change. But, for games like Crysis, they do, indeed, use a big GPU per instance.
2) "720p video in realtime that no codec today can deliver" - Too bad you didn't watch the video. Turns out, this is the same team that brought us QuickTime before video codecs were even discussed. He also describes exactly how they pulled it off, started with scrapping the stream-based design paradigm, using a feedback loop based design paradigm, and creating a new encoder that looks great in motion encoded and decoded in real time (as one of the weaknesses, you can't pause it or it looks like shit).
3) "Presumably happen on the same computing hardware..." - Actually, no. As the presenter describes, the codec taxed even the dual quad core xeons that it was developed on. Then they fabbed custom chips that do nothing but implement the encoding algorithm. It's entirely hardware accelerated encoding, two chips per user on custom boards.
I also thought the entire process sounded like a big stupid scam, but before I declared the mighty victory of common sense, talking out of my ass, I went ahead and watched the video.