Okay, here are my first impressions. I'll start with the good.
Good:
User Interface: The service's UI is very nice. Looking through the games marketplace, you can see little clips of games right next to their name. Clicking on a game will give you a windowed trailer with audio right next to the information and demo/purchase options. When you go to demo, it starts playing a full-sized gameplay clip before you got in there, which took less than 10 seconds on average for me. It made me pumped up to begin playing.
Steady Frame Rate: I tested Dirt 2, Batman: Arkham Asylum, FEAR 2, and AAAAAAAA!. In all but one, I found a frame rate that was smooth as butter. It exceed what my laptop can normally do at that kind of resolution.
No lag between input and output: All the fears about there being a lag between input and output were laid to rest (at least in my case). I pressed a button, and it responded when it should've. It was like I was playing on my console/computer.
Brag clips: It's a great idea to be able to record your best performance without any extra equipment. Watching the clips worked as it should, making it easy to look up user videos. I'll test making clips later.
Games Optimized for OnLive: When I had my fill of the FEAR 2 demo, I hit escape and saw that they had added an option to quit directly to OnLive. Not every game on the service has this, but every game should, since quitting can otherwise take a while. Still, I put this under Good because it shows they're working on that problem. Where it goes from here is a mystery.
Bad:
Video Quality Like Giant Bomb Video: Have you ever been to a Whiskey Media site like Giant Bomb? Even if you put the video settings to Progressive and High, you still get that whole "Steaming Video" quality effect. While the graphics appeared to be maxed out when playing OnLive, the highest video setting on Giant Bomb was equal to what I was seeing. This could be a deal-breaker for many, who would only switch to something like this if quality would be 100% perfect all the time.
Wired Connection Required: I tried booting up OnLive before plugging my hard line into my laptop, but OnLive popped up with a message saying that wouldn't fly. Fortunately, I had the ability to plug in my computer through an Ethernet port.
AAAAAAAAAAAAAAA!: If FEAR 2 and Dirt 2 can run flawlessly for me on OnLive, why the fuck does AAAAAAAAAAA! stutter like crazy? I can run that game on some of my older PCs with every setting set to maximum. This could possibly be Dejoban Game's fault, as I don't know whether they have to optimize the game for OnLive, but it's still unacceptable.
Not Every Game Has a Demo or a full game: Why can't I play a demo for Prince of Persia: Forgotten Sands? I know, it's fucking Ubisoft, but I would not buy a single game on this service without knowing that the game will run well on it. Dirt 2, on the other hand, had a demo option but no buy. This shocked me, since it is one of the best-performing games on the service and a testament to the power of their streaming technology.
Demos: The demos are very inconveniently set up. Instead of creating a demo version that jumps you into the action and lets you play as many times as you need to, we come to a common shareware tactic in the late 90s/early 2000s, where you only get 30 minutes, and it starts you out from the beginning. Not a problem for AAAAAAAAAA!, of course, because you literally jump in and begin. But with Batman: Arkham Asylum, FEAR 2, Dirt 2, Red Faction: Guerilla, and many more games, they have some story stuff in the beginning that I'm sure most people would love to skip. But no, you have to deal with all that nonsense, and concerning games like Batman, that bites into a good chunk of the 30 minutes allotted.
The service could be headed for greatness, but it has a long way to go before it reaches that level.

Paying full retail price or close to it to rent games for three years is a pretty lousy deal. I've slagged Steam in the past for being a glorified rental service, but at least with that you only lose access to your games if Steam shuts down at some unforeseeable point far in the future; with OnLive the deadline is already set and ticking away, and the later you rent a game the less time you get to play it.
To make matters worse, you have to also pay for a subscription. Over the three-year period your game rentals last for it would be vastly cheaper to put that money towards an Xbox 360 and some games (which you get to keep forever, or can even trade in later on to buy something else), or possibly even a decent gaming-level PC with a GameTap or Metaboli subscription (which give you full access to every game in their extensive back catalogues at no extra cost--even the "premium" subscription is noticeably cheaper than OnLive's only subscription option). If you are in the habit of buying more than a couple of games a year either of these options would easily pay for itself within the three-year period.
That's no surprise, because a laptop isn't a gaming PC. Unless you specifically buy a very expensive "gaming" laptop it's guaranteed to be noticeably weaker than a comparable desktop with a midrange video card, and even then you're getting less value for money on a price-to-performance ratio.

So you buy a $3,000 computer "every couple of years" and then only play a handful of games you "might" be interested in?
Odd. I build a new computer roughly every 5 years with plans to only upgrade the video roughly every 1.5 years within that period (not really needed but I like to always game at the highest resolution and detail settings (PC GAMING FTW!). I also play games from the 80's to the current day.
I don't have exact numbers since I'll need a computer (personal projects, video encoding, etc) so there's no sense fretting over cost but it's roughly in the 2.5k ballpark (including everything monitors speakers, etc etc)....and even after 5 years I end up reusing alot of parts.
So I call BS.
Sounds like you are just terrible at managing your money....I don't see Onlive helping with this problem.

I would choose GamersGate and Direct2Drive over OnLive any day of the year. Steam is great too. Just don't find a reason to get banned (I'm looking at you hackers)

I can assure you, that spending $3000+ on a high end PC does ensure it lasts for at least half decade. Granted you may want to upgrade the graphics card once or twice in that time frame, but that is far cheaper than buying a new PC every other year.
And I'm speaking from experience here, I've been buying one top end PC (generally either just under or just over $3000 in cost) every 5 years. Even my PC I bought 7 years ago can still handle most of today's DX9 games on mid to high settings.

The video card is the only real part that gets obsolescent rapidly, CPUs haven't really changed much since they went 64bit (extra cores are nice but its literally more of the same), hard drives, memory, soundcards etc are all the same but the GPU features change regularly. As long as the interface standard doesn't change, a half decade for a gaming pc is slightly pessimistic

You're all so selfish. Not "owning" a game or all that jazz isn't an issue for the brand new PC gamer—OnLive is the perfect gateway to our hobby for those unfamiliar with it. The service itself may indeed fail, but I bet we'll be getting ourselves a bunch of PC gaming brethren as a result. And that's what it's all about—it's not us, it's the newbies.

Do you really think OnLive is where they should try PC gaming? If the latency or quality is bad these newbies will probably think OnLive is representative of PC gaming as a whole and hate on it.

My gaming rig is nearly 3 years old and I bought it for roughly US$1000. I've not upgraded a single thing since.

Not to mention that if the service does fail how are those people going to continue playing PC games since they didn't actually learn anything more about computers (video cards, graphic settings and all that).
Plus if the video quality doesn't bother them then they will be just fine playing on a console. Especially since so far none of the OnLive games are PC exclusives.

How this has anything to do with PC gaming when you don't even need a PC to use it ? OnLive is nothing more than a "remote console", console ports, fixed resolution and graphic details, no mods tweaking or anything of the game, etc... it's not an introduction to PC gaming if anything it's an introduction to console gaming... in worse.

There are a handful of fairly rude remarks in response to what I said, about me not knowing how to manage my money, being an idiot except for being able to put sentences together and a lot of anger directed at my remark about buying a 3k machine every couple years. These amounted to personal attacks and are well beyond what I thought these forums were all about. About the 3k statement, it was an estimate, maybe it's like 2.5k or something, the point is, it's a lot of money that has to be replaced on SOME kind of basis that I'd rather not deal with.
To everyone else, thank you for discussing the topic and not lambasting me, personally.
I don't buy a $3k/2.5k machine every fear years, I stopped doing it in fact and went with a cheap little laptop that can at least play some games, I'm also not nearly as much of a gamer as I used to be, responsibilities and life kicked in, though I still love to play games when I can. Therefore, a service like this sounds great cause I don't want to be spending 1k or 2k or 3k on a new machine just to play a newer game, I don't buy many games these days, so something like OnLive actually fits my lifestyle far better.
I also don't enjoy the constant tweaking on a PC to get a game working with decent graphics and decent playability, I don't enjoy fighting with the OS or patches or all that general computey stuff that just saps my game playing time/life. It was fun when I was younger and had the time to be a geek but it's just a waste of my time, OnLive delivered to my expectations and I was able to jump in and play games easily, no headaches was a breath of fresh air, like firing up the Xbox.
Someone asked if I was using wired connection, I was, that is a bit of a bummer but I understand why. I'm also sure that as time goes on this service will get better (as broadband speeds go up, video quality will get better and the reliance on hard-wired connection will probably not be needed, I'm guessing). I am sure the service isn't perfect but it's coming out of the gate pretty darn good I think.
Again, like I said, the one thing I don't like is that I could buy a game (at full price, no less) that they might take away in 3 years, I'm not thrilled about that, I wish the prices were slashed in half or something. I honestly don't mind the idea of renting a game for 3 years, I rarely play most of my games a year after I buy them anyway. Granted SOME games I will want to own (certain types of RPG's, many strategy games, games I know I'll want to play years from now), I figure I'd still buy the games I really just must own and have no qualms about renting a game for a few years.
To me it's like television, they are delivering games like a TV show, and I have never felt the need to own every single television show I've ever watched, in fact if I had to make a choice now I'd probably have 3-5 TV shows I'd actually want to own and actually re-watch. As for games, its pretty similar, for me anyway.

As a general rule, I don't like subscription services with limited user rights. What I mean to say is,I don't like giving them money for the service, whereas if you don't pay up, they take your rights away. You are quite literally their hostage, with a stockholm syndrome just down the road.

You know very well that spending $3000 every 2-3 years is not required, or even very useful. This is a totally outlandish thing to say - even OnLive's marketing department wouldn't say something so irresponsible. The only times I've ever heard a figure like that are from people who have never invested in PC gaming hardware at all.
I've been playing PC games for twenty years, and I have never spent anywhere even close to $3000 on a machine - yet somehow, I manage to keep up. I'd venture to say that only a very small percentage of PC gamers spend that kind of money on hardware.
I spent $600 2.5 years ago on an almost completely new system, and I have yet to feel that I need to upgrade it. By your reckoning, I'd be lucky to play Deus Ex on it.

Which brings back the main question why don't you buy a console then ?
Console don't cost that much and with used games or even bargain bin you can buy games for pretty cheap and you won't need a permanent connection or paying a subscription forever, have better video quality and guarantee no lag. And if you ever decide to move to another country or in a region with not so reliable Internet connection you won't lose all you games not to mention that you can resell them.
How is paying full price + subscription to rent a game better than that ? (not to mention revolutionary)