If you believe this then you haven't actually sat down and thought about how it would work.
Fragmentation, varying bandwidths, scaled software builds, incentives from devs... It doesn't look pretty at all from a practical standpoint.
What is practical is a drive-atar system like in the latest Forza. That's a one-to-one replacement of offline code with a downloadable, non-dynamic segment of code (the AI behavioral code) so the points in the paragraph above don't apply.
But this drive-atar feature is entirely possible on any system. It just requires dedicated servers as there is very little computing to be done. It is in fact very similar (but slightly different) from uploading other player's ghosts in time trial and has therefore (practically) been done before. I thought it was a brilliant system (which I hope GT copies), but it's nothing to do with MS's claims.
Improved visuals... No. I'm afraid it's not going to happen on any meaningful scale. A handful of exclusive games might have slightly better shadows or reflections, but it won't be a significant improvement - just something to say "we told you so". This is a fact that anyone with a little technical know-how can corroborrate. FYI I have developed quite a bit of software.
I wanted MS to release something completely different from what eventually became the X1, but unfortunately (for me) I'm not their target audience it seems.
