Let's all close our eyes and imagine this 'OnLive' actually works.
First of all, it doesn't matter what anybody does, so long as you're connecting to the service from your client over the internet, you will experience latency. It won't be at all like network latency experienced in multiplayer games, as it will be the user interface itself which lags.
In a typical multiplayer game, your client will 'predict' what the server would allow you to do to a degree, which is why movement usually appears instantly responsive, unhindered by network latency. In reality, your character is actually a fraction of a second behind where your client shows you. With a service such as OnLive, this prediction would not happen, and actions will always be that fraction of a second behind your keystrokes. Controls will feel sluggish, and there's nothing you can do about it.
Now, consider this: OnLive will have to connect to external multiplayer servers (assuming OnLive doesn't provide dedicated servers for all the games they offer, in which case lol gg) on top of your connection to the game instance. This means you'll experience network latency twofold---lag between your computer and the OnLive game instance, and lag between the OnLive game instance and the multiplayer server you're playing on. It'll feel like playing five feet away from your keyboard, striking keys with a length of hose.