This is really getting silly now,

Graphics processing is a very time sensitive thing, the only thing cloud processing is good for is putting things that would normally take up cpu time, that AREN'T time sensitive, into a packaged job for the server to do, then receive it back for use, offloading the process of the ai and freeing up a little resource usage for the console to use for graphics rendering.

that said though.

graphics processing is primarily done on the GPU, the GPU has an extremely low number of processes and tasks that can be considered low enough priority to be rendered externally then passed back to the console for use, CPU processing has an increasingly small effect on overall graphics capability as we can see from games that are done primarily on the GPU, with the next generation of consoles being closer than any console has to being the same sort of framework as a pc, aimed at high performance games, what happens is the CPU doesnt see much use at all beyond processing AI and physics, unless you move processes from the GPU to CPU such as shader processing - but you can do this without issue as even though theyre time critical the CPU is local and, with the newer consoles, directly linked to the GPU.

Offloading graphics processes to the cloud then, will be ultimately for processing that is not time sensitive, and such processes are very low on the priority scale, meaning they have little direct impact to the visual quality of a game, and more on things like calculating a shader for an upcoming level which may or may not even end up being used.

What you need to understand is that a lot of data passes through the cpu and gpu, a LOT of data.
offloading any meaningful amount of graphics processing to an external server would require too high a network load/speed.

Those expecting the difference between offline and online "cloud processed" games having a notable increase in framerates or visual fidelity are sorely mistaken, you're at-best going to see a very slight stabalization of framerate jumps because a few more cycles for the cpu are freed up.

It has its own caveats of course, the additional network load will directly impact network performance of internet connections that otherwise were just about good enough for network play, with lag spikes occurring as jobs are uploaded and completed jobs downloaded, of course no self respecting Microsoft rep or Xbox fan is going to cop to that.

Frankly, I hope they don't even try messing with larger pooled jobs in an attempt to boost graphics because the downsides far outweigh the benefits.

Last but not least, the cpu cycles saved in sending some jobs to an external cluster for processing does not, and never will, make up for the gap in actual hardware performance between the two, and any server side live processing for contiguous online words can, has been, and will continue to be done on game servers without the need of any particular cloud cluster.

If you want to call me out on my knowledge of the subject to say I'm wrong, I am more than happy to go through the processes of providing a moderator with my supporting credentials.

Microsoft has problems in their Policy Approach. They are thinking too "locally", only from an American Perspective.

Even if the cloud power could be real, you can't really rely on them because,

a) Not everything may be cloud powered
b) If anything, Sony has the same kind of advantages, maybe even better being already in the possession of services like Gaikai
c) There is no "online" requirement anymore, so the power of the cloud is mostly reserved for multiplayer, but any service with dedicated servers can do that as well.
d) The power of the cloud, in the way MS tries to implement, will be mostly confined to US, which makes its desperation outside North America even more apparent.
e) This will go down the road of the "Kinect" where localization suffers tremedously. Not everyone speaks English, and unless you tune it up to people's native languages, they will not appreciate it (maybe a gimmick for some nerds for a while). The exact same thing can be said of the cloud.

In short, MS has terrible Public Relations and have no clue what non-Americans (or at least non-English Speakers) want and/or need.

Don't try to talk sense and logic here.

The usual crew will be along shortly to convince you of the power of TEH CLOUDZ!!

This is what Nvidia is doing. 

http://www.youtube.com/watch?v=CkSSUChfjLk

Yes, offloading to a networked server, these demonstrations are done on a local network, not a standard ISP internet connection, and even WITH the processes being done locally they still ended up with 100-500ms latency on processing because of the time wasted collecting pools of data to process, transmitting that data, having the data processed externally, then receiving that processed data back and, assuming they didnt bother with error control to make sure received packets were correct (hashing), finally be used by the gpu, the process isnt perfect and never will be, for closed networks, so the chances of it ever being a viable solution for realtime graphics processing on standard network connections pretty much rules out this generation or the next 2 or 3 being able to use it.

I am more than happy to go in to great detail to show you all exactly why cloud processing for live graphics processing isnt going to happen, and why it will at best be used for storing non-critical data such as npc text and player stats rather than processing actual, genuine, graphical processes.

Some of the comments here - people can't see the future that is about to run them over - sound just like the people that say the combustion engine might work if they could make it stop scaring horses.

While the final rendering of the GPU is important, it has become becoming less important for quality graphics since things started going 3D. So much of what is important - such as lighting, reflections etc. has already been shown to work quite well in the cloud - even at a ridiculously slow 1 second of latency. The final picture is rendered by the GPU - but setting the stage is becoming more dependent on other systems and processes.

When streaming off Flash would sputter and stall, Microsoft released Silverlight - which pretty much everyone uses for streaming (the Xbox, PC, Roku, PS3, Blu-ray Players, etc.) - and we now have a streaming entertainment age.

I understand many people don’t understand, can’t see, or do not believe it, and fortunately, most of them are not at a position to stop it from happening. I am glad a new frontier in gaming is being pushed by Microsoft. It all comes back to my motto:

“Those that say it can not be done, should not interrupt me when I am doing it.” (TM) ZappyKins

Blast Processing Marketing is all Cloud is

That sounds familiar...

theres been a few devs that already said it wouldnt work that well for graphics, and i dont recall many of them saying you can off load a ton of cpu type work to free up a lot of resources for gpu work.. i remember cerny saying the ps4 can do this type of stuff too but wouldnt be that worth it,sounds like you'd get very little out of it. if i recall that guy hiphopgamer asked a dev about this and he really shot it down saying it wont help much for graphics