Disclaimer: I haven't used OnLive and this is all just my opinion & thoughts (and I'm only really answering the last part of this question)
OnLive is the future of gaming, but more than that, OnLive is a gaming manifestation of a shift in the computing industry that has been gradually taking place over the last 5 years or so.
The entire computing industry has been moving towards a Software-as-a-Service (SaaS) as the Internet has become more integrated with computing and daily life. Products such as Google Docs, Salesforce, Mint.com are all examples of tradition boxed desktop products that have been moved to online platforms (this is sometimes called cloud computing). The idea being that you enter into a service agreement with the company, and rather than receive a boxed product, you receive access to the product.
The big advantages of this SaaS approach is the centralisation of the code & customer base. Piracy becomes impossible, deploying patches to your users becomes trivial, tiered subscriptions become easy to manage and hardware configurations can be guaranteed.
I highly recommend people watch this video from Simon Wardley from Canonical on this "Cloud Computing" (SaaS) model: http://www.youtube.com/watch?v=okqLxzWS5R
So OnLive, which removes the boxed product, is taking this SaaS model to gaming and with it, the big benefits of the SaaS model come with it.
So will OnLive currently work for hardcore gaming?
Will it currently work for certain games?
Is a SaaS gaming model the future?
OnLive's biggest issue currently is technology. Gaming is one of the most intensive computing processes currently in wide use. Being able to process thousands of instances of different games, simultaneously and transmit that to thousands of different users accross the world is a huge technical undertaking. With current technology the bandwidth to supply HD video at 30 fps to users with low input latency is just not going to happen. The future however...
So to sum up my rambling thoughts. What OnLive represents is the future, but maybe OnLive has come a little early technology wise. However, every major change in an industry needs a visionary, and maybe SaaS gaming's is OnLive.