Without wishing to flame, it's based on 12 years of professional experience working in the games industry. I could lend reason to AI, however I stand by my comment with regards to rendering and physics.
Not to put down your considerable experience but Microsoft is the largest software company on the planet - if anyone can do it then it would be them.
OnLive, despite failing, was not dissimilar to "cloud rendered graphics" and it worked. Lots of things people thought impossible 10 years ago are now commonplace.