Right now the Netflix analogy holds true if Netflix sent you 4.39 GB rips of regular movies. They send you regular copies of the movies, so you're getting the same product as in the store.
When they're able to offer games at the same quality and user experience as players who are running the games on regular hardware, then they might have a shot.
I just don't see the long term value here either. You can pick up a console for about two hundred bucks, at which point you can pay the same amount for games, and not worry about lag or anything.
And once the technology matures enough where you can deliver games with no noticeable difference between streaming and local games, then Steam, Games for Windows, Direct2Drive, GamersGate, etc, will begin offering those services anyway, and with their huge built in customer bases, blow Onlive out of the water.
The only way they would survive is if they sell brand new games at a substantial discount to the other companies, which will never happen. I can buy all these old games on Steam for a fraction of their full price, and play them locally whenever I want.
