This will materialize in the same way that Cloud gaming has taken the market by storm. It's nice when you want/need to game on a phone, but the experience doesn't hold up to native and the laws of physics are immutable, you can't defeat the latency of running your PC in a data center miles from your house. Even running Office apps will be a notably degraded experience.
Microsoft is crazy, but they've not done anything to kill the golden Windows goose in all this time, I can't see them thinking this would fly when they know the costs and downsides from doing xCloud.
It's kinda built for that market entirely, remember Microsoft's biggest market is licensing. A hundred cheap computers is still 10k in licensing costs. One big bad gaming rig is only a single license.
youre right, the hardware will never go away.... but there are many in the cloud-only corporate space where hardware is almost irrelevant as every single piece of software, including windows, is provisioned from the net. thats today. whats tomorrow going to look like for retail?
I’ve got a cloud gaming machine at Paperspace running Parsec and it works great. Of course, I’m less than 50ms from their data center and have gigabit internet.