OnLive went live last week. For those who don’t know, it’s a cloud computing video game service. That is, all of the processing is done on an external server, not your machine. In fact, your machine essentially becomes a terminal through which the video is displayed.

I heard about this service about a year ago, and immediately signed up for the beta. Unfortunately, I wasn’t picked to test the service. However, when they announced that they were going live last week, I signed up again. Today, I got the invite and played around on a few demos. When you download the software, and fire it up, the first thing you notice is all of the videos being streamed to your computer. But that’s the big tech behind this, streaming video.

Streaming video? But hasn’t YouTube been doing that forever? Sure. But the thing is, when you watch a YouTube video, you’ll notice the little red bar increasing as it downloads the movie. That is, the movie downloads faster than you watch. The difference here is you’re playing a video game. Every time you move your mouse or press a button, the picture on your screen is going to change in some way shape or form. There is no downloading in advance.

So huge huge kudos to the engineers behind this tech as they’ve done some pretty wonderful things. I recall one of their tech briefings where they talked about how they developed a dedicated chip to be able to encode and stream HD video in almost real time — which is pretty awesome. But almost real time is the key here. Yes, there is a little bit of lag. Is it a showstopper? I don’t think so.

To that end, this sounds like the hardcore gamer’s worst nightmare. “Lag this, lag that”. And I’m sure there are plenty of them out there who’ll disregard this service just because they don’t believe it’ll work because of the lag.

However, I think that the real showstopper with OnLive is going to be the pricing. I’m no buisnessman, but there’s a pretty big price range between all of the titles. Assassin’s Creed 2, for example, is $39.99, with no option for the 3-day or 5-day PlayPass (in which you essentially rent the game for that amount of time). Batman: Arkham Asylum has no option to buy the game, and only offers 3-day or 5-day PlayPasses. And then there’s Tom Clancy’s Splinter Cell: Conviction at a whopping $59.99. It’s a little scattered, but then again, this service is only a week old. So I’m hoping that these things will smooth themselves over time.