It won't be cheaper than physical hardware because the subscriptions will add up, the bandwidth and latency issues will make it an inferior experience to PCs and consoles, the DRM and usage rights issues will mean you don't keep what you pay for, and decent PC/console hardware is extremely cheap these days.
You need a basic computer to use OnLive; a good gaming PC wouldn't cost $200 more than that. I don't think OnLive can match that.
"The loyalty of fans" has never been a decider in console 'wars'. It's always good software and the availibility thereof. If the software is good enough people will pay any amount for the hardware. OnLive is a technological tool that doesn't make games better or more numerous, and early next year Llano and Sandy Bridge will make a gaming computer no more expensive than the cheapest one you need to use OnLive now.