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The cloud, as a technology, is legit. Whether the investment in delivery, or broader infrastructure will be there to make intrinsic changes to typical software in the Xbox One's lifetime is well open to debate. Much as online gaming was flirted with on consoles decades before it was consolidated, this is young tech without the low latency internet penetration to make its more vaunted features deliverable as standard. On Microsoft's end, the infrastructure is there. On the consumer's end, there aren't enough users connected to fibre around the world, just yet.
It is something we will see and talk about much more as the next round of systems emerges. For now, it will be lag-reduced online gaming, slightly more sophisticated physics, and whatever else can be implemented without alienating huge segments of the user base.