-Latency:

Playing a multiplayergame on a PC and playing with "remote video" is not the same. The PC games do lots of local direct updates that make the game seem respond immediately. (like the camera movement).
The felt latency with this remote video technique will be much
higher as every user-input action will relate to a delayed visual output action.
There is a reason why multiplayergames dont do everything purely on the server.
(such as in WoW moving the player-avatar directly on the client,
and only passively controlling the correctness by the server)


-Pirating:

The games on OnLive are very save from pirating. Especially if
they would only be ditributed via this service.
There is no way to copy them, unless someone breaks into
the actual Onlive servers. (and this can be avoided much more easily)
The service itself can be recreated by others though, and will
become a standard approach in the future anyhow.
(look at the google "online office" service, or various
videocontrolled online Linux workbenches)

Its more a question about general network infrastructure than software innovation.