You may want to put that it's not yours at the top. I was convinced it was yours until I read all of the way through.
I think the article is contradicts itself. It says that differences in hardware power will become irrelevent as games can't noticeably take advantage of better hardware, but then it states OnLive and cousins are the solution. But OnLive is designed to circumvent a lack of hardware power on the customer's end, which he said won't be important in the future anyway.
It's possible to build an awesome PC (and therefore console)that plays most games on high settings for about $600 these days. The fact that most PCs don't achieve this level is due to
1) Most people's PCs were bough before this year,
2) Dell/HP still sell rubbish at $600 so they can have a large profit margin, and
3) Current console hardware uses 2005 technology.
A few years ahead, 1) will lessen as PCs are replaced, 2) will lessen as even the cheapest hardware Dell can find is still good enough, and 3) will lessen if consoles with 2008-gen hardware come out. So almost all PCs will be able to play the best looking games we can imagine, on their highest settings. Then OnLive will be obsolete, AND there will be no need for graphical-upgrade consoles.
So where is the innovation going to come from? Controllers. Nintendo has given us something unique with both Wii and DS and future upgrades starting with WM+ show that there is a lot of headroom for new tech still there. Future consoles (and indeed future games; I don't think the Haloesque FPS genre has much more room for sequels) will have to sell themselves based on unique interfaces and controllers that the PC can't achieve.
Digital distribution will become more important, but it is not a trend that will drive new games. It's just a nice-to-have*.
*Of course, I believe digital distribution is bad because in practice it increases proprietary lock-in, DRM, copy protection, etc. But a pure implementation [i.e. you can do anything you could with a CD AND have the extra benefits ] would be a step forward.
