Since when does multiplayer gaming take place in ideal conditions? that's called LAN.
Onlive's compression is a factor, regardless of having a perfect connection. Also, even with 250 ms ping, Unreal is still playable, unlike the joke the Onlive presents its users with.
But I don't think serious gamers are the audience anyway. Obviously, if you are into gaming, you will have a rig that blows away what Onlive can provide you with under even the most ideal of circumstances.
Go after the MAC market, they don't have many games to start with. Or the WII crowd, who are used to low-res graphics.