Is this because it streams the games?
Yes. Despite advances in internet bandwidth, offline is still the best way to pay fighting games. This is why GGPO and other rollback netcode implementations run the games without waiting for sync - to reduce/stabilize delay. OnLive, and other streaming services do the opposite where you’re waiting for your inputs to be reflected on stream.
That is interesting you said Onlive is behind. I would assume it was ahead. It allow you to play console games without having to download it. I can’t wait until we can play console game directly from the browser.
GameTap already tried marketing the browser plugin playing aspect exclusively only to meet failure.
The problem with this is that this will always have some lag based on your distance from the server. This is something that is unacceptable in a genre (fighting games) that require millisecond quick reactions.
Do yourself a favor and get PC games on steam. As far as I know it actually looks like capcom is dropping GFWL and going for Steam instead, like their 2 latest games for PC, Devil May Cry and Resident Evil. It may not be Steam only, but it is atleast not GFWL.