I actually played some UT3 using their service and it was laughable at best. The king of twitch based shooters being played with movement lag? Gross.
On the flip side, I also played through some hours of Batman Arkham Asylum which was completely playable. The movement lag is not less noticeable it's just more bearable.
At the time, OnLive wouldn't let me play with wireless. It would refuse me access unless I plugged in through ethernet. I've heard they allow wireless now but your results will vary with that. The picture quality is good but a little muddy. But, obviously, better than if you have a bad computer.
So, you pay for a subscription to OnLive and then you have to buy or rent games as well. It's the main reason I didn't keep up my subscription. There's free games and cheap packs of games as well as renting so it's not a complete money sink. It might not actually require a subscription anymore though looking at their site right now. I got a year for free and once that was up I cancelled my account. You all might be able to try out OnLive right now for yourselves.
I've had a free subscription to OnLive and I live near Chicago where they own some servers. It means I experienced less latency than some other states but there was still split second lag between when you pressed a button and when things on screen happened. It's not bad but it makes FPS's annoying to play.