You also have the problem that if all the processing is taking place on the server, that requires massive, MASSIVE power in said servers (including custom gfx cards and all that entails). You’d effectively need a £500 PC min for everyone online.

I just did some very brief calculations. To keep a TrueHD game going at the rate you describe (given there’s not time or spare CPU for compression of images) you need an internet bandwidth of about 469MB/sec or as they sell them in the UK, just under 3800Mbits/sec. So about what…25 times Virgin’s best claimed? And how often you Virgin users get 20mbit constantly off 1 connection to Korea? And that’s without latency issues, a 1 second ping to Korea would actually be good. As you note, not suitable for any action game.

One day maybe, now? You’d be better building PS1 level hardware into that TV (which is pretty much £0 now) and selling games the way they do in the PS3/PSP store for download onto SD Cards.

This is the bit where you’re wrong, the game has to still “run” on the hardware in the home, even with browser games. Unless said hardware is the level of the other consoles, the games will be worse looking (compare any browser game to Crysis sometime).

Certainly this is a valid and superb idea for “casual” stuff, nearly solving the problem of chucking 50gb of Metal Gear Solid 4 down the internet every session, but it won’t work for “grown up games” any decade soon.

Sony is a terrific hardware manufacturer, but consumer hardware will become more commoditized in the server-based world. The trick will be to form smart alliances with the network infrastructure players and then crank out lots of value-added software and services. This is an activity with which Microsoft has plenty of experience.

Of course, there is nothing to stop Sony or others from also being aggressive and innovative in this arena. But, ironically, Sony’s love of its own consumer hardware innovation could slow it down a bit. It is going to be fun to see how this unfolds.