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This could go either way. The console war would still exist, because every company in the game would have their own little stake in the market and they're not going to let things blend together any more than they already do. And yes, it could go all server based downloads, or maybe it won't. I personally think it would be a dumb move to limit your user base to only people who have access to broadband internet connections. Yes, it is fairly common now, but there is still always going to be that part of the market that doesn't want to be connected to the internet just to play games as well as people who just simply don't have access to the service. (This is also the reason I think Chrome OS isn't going to be a big hit.)

On the other side of the coin, I used to contribute frequently to the PC Gamer Magazine forums, and I actually predicted this a few years ago, subsequently getting laughed off the internet by my fellow members. I described a scenario pretty much identical to what OnLive is trying to do, and nobody thought that was viable. Well folks, it's becoming viable. If we now have the capability to stream 1080p video to our entertainment centers, we can certainly handle doing some cloud gaming. What remains to be seen is if users actually want it that way or not.

I personally don't care--I will play the games I want to play. The method in which I do that is irrelevant.