If by real you mean only in the prototype stage, not tested in an uncontrolled environment, and not likely to be used effectively or at all in this generation then, yes. It's real.

The difference between the 2 demos are is that this demo is using a destructible mesh which means that it has to calculate the separation and deformation of the objects and the havok's demo is using a static triangle mesh. 

Didn't bad company do the same thing eons ago?

I saw the demo live...  I'll try and address some of the things all the naysayers are waving at this...

First, People should understand the context of this demo.  First and foremost this was a demonstration to show how the power of the cloud can help a game work better.  It was intentionally exagerated (Doing something extremely difficult on any single machine) to make the differences obvious.  This was not a running game or prototype to a game, this was merely an exercise to take something stupidly, nearly impossibe on a single machine and show how it could be done using the cloud.

Second, MS also said they are working with Internet infrastructure and telco companies to work on improving internet latency over time so this will not be as much an issue.  I talked with an MS person after and they said that 99.5% of X1 owners have always connected broadband internet and spend an average of 5 hours per day on their console doing online gaming, streaming, etc.

Third, if you play Titanfall, Forza 5, or Deadrising 3 they are all using the cloud to do stuff that cannot be done on a game console alone... In DR3, it is the processing required for the number of zombies and their uniqueness, Forza 5 is the processing of gameplay to create Drivatars, and in Titanfall it is about removing online cheating, host advantage, and processing the environment for the console to render.

Fourth, you do not need Live Gold for cloud computing, this is the service that comes inside of the X1.

Fifth, MS doesn't care about offline.  Offline does not generate revenues...  Online generates revenues through not only games, but movies, tv, apps, music, and online subscriptions.  Gamers need to understand that gaming is not the only revenue stream of a console.  MS is tapping into the other revenue streams to help try and ensure their console has longevity.

He broke the rules. Stop defending that kind of posting.

Start using "of."

My bad.

That's nifty and impressive but people shouldn't assume that what they see in a controlled demonstration using dedicated resources and optimal conditions is even close to being implemented in real-world scenarios.

I'd like to see that same demo on my PC using my 3 mbps connection, for example.

Intresting stuff. Just one step closer to Microsoft taking over the world.

Completely agree with this.  Plus, this demo was heavily controlled and limited.  Now, let's move this into a real world situation, like online co-op.  Imagine if there are two or more gamers in a level, all making different decisions, with dozens of AI enemies and destructable environments.  Then, just imagine not having the fastest/most stable internet connection.  No, cloud gaming that shares large amounts of computations between local HW and cloud servers is still just a thing of the future.  Of course, by the time it becomes 100% doable in real world execution (in a decade or two), a beefier GPU will still be the much better option.

I would have to say that Gaikai/Now is a much better solution in the real world, as there is no shared computing, just streaming the A/V and your controller inputs to and from the host server.  There's also the benefit that it is 100% already proven to work.