People are already complaining about the lag in Diablo 3. It will never work fast enough for certain games unless you live close to a data center and have a fibre optic connection. Since I live in a small town that probably won't happen for a very long time.
And you would be wrong to think this will speed up technology improvements in gaming. Sure it's easier to replace hardware in data centers, but we're talking about for profit corporations here.
I don't see on demand services trying to bring you the best 1080p video with 7.1 lossless sound at home. It settles at a quality which most people will accept. It will be the same for games. Why spend a lot of money on hardware to give you the best experience when you can get most to play your older and cheaper hardware.
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