I have been testing out the latest versions of both the Boxee software and OnLive and I have to say that these two pieces of software are meant for each other. For those who aren't familiar with OnLive, it's a new PC gaming platform for renting, purchasing, and playing games remotely on the company's servers. The client-side requirements for the software are basically limited to a single ethernet connection and OnLive can even run on netbooks without a hitch. Amazingly enough, the software works really well and the lag between the user input and the output on the screen is only several milliseconds. The company recently launched hardware to accompany this service, which consists of a set-top box and gaming controller for $99 (which does not put it in direct competition with Boxee Box pricing).
In many ways, OnLive and Boxee are both in similar positions. They each have revolutionary software and their business models are highly dependent on the number of eyeballs that they can deliver to a computer or TV screen. This is why Boxee should partner with OnLive to deliver a gaming solution to (at least) the Boxee Box. The desktop-side software clocks in at around 8 megabytes, so there should be no problem with space constraints. Similarly, the hardware for the Boxee box and the OnLive Gaming system are nearly the same (HDMI out, Ethernet, optical out, and 2 USB). Hardware compatibility with peripherals would also not be an issue, since OnLive is compatible with any USB-enabled keyboards, mice, and even Xbox controllers.
Of course, OnLive may not even want to partner up with any other hardware/software providers, but it will be a while until they become profitable enough to support themselves financially. Furthermore, whether Boxee does this or not, someone else will take advantage of this kind of integration down the road. Google TV will obviously make a push in gaming on the television, but its hardware will limit the games to basic offerings like sudoku clones and marble maze games. So just imagine if Boxee could allow users to play and rent copies of games like Assassin's Creed II and the new Deus Ex directly on their TVs. It would be a killer app and a killer marketing tool. Tell me what you guys think.