Maybe, but the 1280x1024 will look better since it is a bigger screen, and the higher res means you'll see more detail.
BTW for a good example of input latency, go play DIPRIP on Steam. It's a vehicle game but the guys who coded it put NO lag compensation into the cars at all so it's very frustrating for internet play on anything over 50 or so ping (PROTIP: I have never been able to find a server under 70). Compare this to TF2 which has great lag compensation and is playable up to 200 ping, although best under 100.
Of course Source runs locally on your computer so this is a bit different.
Say you're playing TF2 online. You go and snipe this guy who's running and you kill him. Now let's say it takes 100ms for updates to come from the server to your computer or visa versa (I forget if ping is one way or round trip), you're viewing him through your scope where he was 100ms ago. When you shoot at his head, that's not where his head is NOW, but where it WAS. With no lag compensation you wouldn't hit him. But the server gets your fire command 100ms later, rewinds the game 200ms to figure out what the game looked like to you, and verified that you did indeed hit him. The player is then killed (he may be slightly confused by this if he ran behind a wall in the intervening 200ms but that's life... he can do the same thing to you later).
Now with OnLive, if you don't modify the actual game source code, it's not going to work well. First of all, every key you press, it'll take 100ms to get to the server, and 100ms for the video to get back to you. So you get a 200ms delay between a press and action.
Playing TF2 you get instant feedback by moving when you press a key (it still takes you 100ms until the server gets the command and moves you, and another 100ms until the client is told the move was successful, but the client can fake it since it has the same map collision data as the server).
With OnLive if you shoot an enemy with precise timing, if he moves within the 200ms delay you'll miss.
The only way OnLive can work is if games' source code is updated to include lag compensation. This isn't something they're going to be able to easily drop into games, even if they do make a standard source code snippit (like valve did with steam support for third-party titles) since this would change the core behavior of a game. And even with the best lag compensation for stuff like killing baddies, you can't compensate for input lag because you can't guess what buttons the player will press. That will kill it IMO. The only way to avoid input lag is to do rendering client side. Which is what we have now.
