If you delay input for two frames, it's very noticeable. Mac OS X had 32ms mouse latency for years, and it was awful. It was annoying while using the desktop and obnoxious in games like Team Fortress 2.

I played a bunch of Arkham Asylum and DiRT 3 while using OnLive streaming, and the input latency definitely made some parts of the games harder than they would have been otherwise. I'd be hesitant to use streaming technology for any competitive game; you're handicapping yourself if you're playing against people who aren't streaming.