Excuse me, but you dont feel yourself being wrong? I mean...lag, server problems were the problem that was ALREADY solved..because of investors, who invested millions of money, after knowing that this project will certainly work.
How can you be smarter than those investitors and project ingeneers and other important people?

Buffering has been needed for even simple things like a radio station online for ... ALWAYS. Without buffering and when maintaining a constant live connection, it would mean that any hitch would freeze the image. Unless they have Jesus on their team, there's no chance in hell that they can prevent this from happening all the time. Anyone who knows anything about networks knows this. Even Digital TV is delayed by 3 seconds to allow for buffering and that uses a hell of a lot less bandwidth AND is a one-way connection.
Unless their system is capable of lowering quality on the fly when a connection suddenly decreases in quality (something which happens for all kinds of reasons, especially on a shared connection), the only alternative is massive decryption errors and freezes.
And why investors fall for this? You do realise there's a thousand stupid ideas that had tons of funding as well and even if the idea doesn't take off, they still have a patent AND technology which can be applied in other fields so it's not completely wasted.
With Digital TV, the cable company here cheats by preserving bandwidth just for the TV - this system won't have such an advantage and will borrow directly from your Internet bandwidth which is limited and affected by any other appliance that makes use of it. It takes just one person to watch Youtube clips in hi-def for a 25Mbps connection to drop to a 5Mbps connection.

So what you are saying.. if I follow correctly is that OnLive works through the power of Jesus? Stick a fish symbol on the side and they will have no trouble selling it in the Bible belt.

No I'm saying that they really demand a lot from your connection and, at the moment, the average user will have a far from smooth experience. ADSL in some of the more remote areas here is pretty unstable for starters.

Eh, I have a somewhat shoddy connection and I was able to successfully participate in the OnLive beta. Nevertheless, it isn't designed for everyone, just those who have a fast Internet connection. They aren't marketing it otherwise.

Regardless if they get round the tech issues, there's still the whole "$15 a month to get in, and you have to buy the games separately" thing which is probably going to be a very large impediment to their growth. But we'll see.

There was that austrian experiment with teleportation of quantum state of photons, using them as a possible vector for data transfer. Quantum entangled photons might manage to this magic system viable IF they've managed to perfect it. Now reliable quantum computing would be worth $15 a month!

If you think investors are fully informed about the technical details about what they invest in, or that companies are fully honest with their investors... well, you've got a lot of learning to do.
Also, to add a bit to Red_Avatar's post about buffering, an interesting thing to compare to OnLive is games that already require constant server-client communication, such as MMOs. The interesting thing about these games is that even though the amount of data being sent back and forth is vastly smaller than what OnLive will be sending, they still have to employ quite a few little tricks to gloss over the fact that the client and server can't stay synced well enough to produce a seamless gaming experience (e.g. the client processing game interactions based on assumed data, then implementing corrections when the client and server states don't match up). Not only is OnLive dealing with far more data, they can't implement these kinds of tricks, so any brief interruption in data flow will be incredibly obvious.

Just look at Ubisoft's UPlay. Totall and utter disaster,

To clarify, Ubi's new DRM isn't Uplay; Uplay is just a content platform thing extending Ubi.com and is available on consoles as well as the PC.