Even though I talked about this before, there are 3 different types of cloud services and each service utilize different software to accomplish a task
Saas Software as a service. This is the type of service that Gaikai and this new Rio service from MS go under.
Iaas - Infrastructure as a service. Think of this one as hosting a bunch of servers or VMs.
Paas - This would be a platform for building cloud based application. Think of MS Orleans which is the basics of their cloud compute infrastructure.
MS Azure always did all of these different types of services and this is very basic as the infrastructure is really complex especially the software.
The interesting part is if MS is just using their rack of PCs or are they using specialize hardware like the Nvidia Grid.
MS is using xbox 360 SOC's likely to achieve backwards compatibility just like how gaikai does it.