So how can it work for but older games. Wouldn't be it slideshow with modern games.
The PS3-games will basically probably look and sound like a direct capture PS3-game to Youtube, in 720p.
I.e it will look better if you have the game on PS3 originally.
Along time ago, before Sony bought GaiKai, Eurogamer compared the lag with Bulletstorm GaiKai and Xbox 360 lag - both got 133 ms controller lag. There are alot of high-powered PC-serverfarms tough, and new gfx-drivers are very much optimized after a while.
Gaikai were a pure software-company tough, when Sony bought them, before the Sony hardware-teams got involved aswell..
Sony has had to build new custom PS3-datacenters, with new custom hardware, since if they just were going to put thousands of PS3 in each datacentre - they would quickly get pretty high elecrical bills, and probably have to pay much more landrent, for whatever areas they were placing the datacentre at, due to the size of each datacentre.. :-/
The new data-server racks were rumoured to have 8 custom PS3's, according to Eurogamer. :-/ They guessed it would increase lag to like 30, compared to the usual 100-150 ms lag on PS3.
When they get as far as to start putting on PSP, PS1 and PS2 games on the service, those can probably be emulated on much more powerfull hardware, running faster than a custom cell-processor and RSX-gfx-chip can.
Also when the PS1/PS2/PSP games comes around, there will hopefully be high-powered scaler-hardware, included in the H.264 video-encoders.
I won't have acess to the service before Q1 next year - so I don't really know how it is.
I played most of what I wanted on PS3, but there are a definately a few Vita/PSP-visual novels and RPG's, I'd like to try out on from the sofa on the big-screen, wich I skipped on on my handhelds, if they could get a decent image out of PSP games , because I'd rather have the experience in my livingroom lying on my couch, instead of holding a handheld for larger periods of time. :-)