I'll go back again to Thurott's statements about MS having worked out a solution that addresses latency. It is commented on in that article, and it's under discussion at Era, but I don't have the techno-chops to discuss it intelligently. However, I do know that MS engineers seem to be able to pull a rabbit out of a hat now and then (e.g., 16x boosts to native resolution on OG Xbox games). Maybe they've got something worked out that reduces the bandwidth and latency issues that people are citing as insurmountable barriers.
Not saying they have a way of reducing latency to zero; obviously that's not the case. But if they've got some scheme that can cut latency substantially, that could result in a product that would appeal to a significant percentage of the market (at least in countries where MS typically sells).
And remember again, we're talking about appealing to the casual $99 buy-in crowd, not to gamers like us.
MS also said the had cloud based gaming ready for this gen too. Hell, Crackdown 3 was supposed to be the realization of this dream. Hasn't worked out as planned. I'm cautiously optimistic for them but the proof is in the pudding so to speak.