The rumor that they would be using Gaikai to run previous games (PS2, PS3) was actually true. This is no where as good as emulation, though, since there will always be a tremendous lag during play, unless you live next door from the big servers and have a flawless, fast connection with almost zero ping. Net, for most people out there, this will be a terrible experience.
OnLive has shown there's surprisingly little lag with most above average connections.
We'll see how it goes here, but I'm pretty sure it will be a good experience (that will only get better as internet infrastructure and their servers expand).
I hope Sony are planning on investing in many international mirrors/cdns to make this work. Australia and New Zealand traditionally get excluded from this kind of thing, which makes me wonder if this will be one of the first consoles where your location drastically affects the quality of the service. Lousy pings in multiplayer games are tolerable, but laggy single-player games would be pretty miserable.
One more thing. This also means I cannot replay all my PS3 games in disk form (thanks Sony!!) and probably that I have to pay AGAIN to play them on Gaikai (or that it will be part of a subscription fee). That clearly shows how little they think of their costumers.
