The whole thing is Microsoft scrambling after seeing the PS4 specs, that it uses faster RAM and does more computations at a faster speed and shit. Pulling "the cloud" as a trump card usually "tricks" people who aren't in the know because it's a marketing buzzword that many layman folk don't really understand.
Even if 300,000 physical servers were adding to the graphical power, you wouldn't want that. You would need an internet connection constantly or your game would look worse than it could, you would see compression artifacts, with some textures and shit looking like a sub-HD Youtube video, and if your Internet was capped you would eat up data rather quickly.
It just looks worse and worse for Microsoft, but what I wonder is if ordinary people who don't visit gaming websites and do their research are aware of what lurks beneath this machine. I foresee many angry people who don't understand why their game has to install, why it asks for a fee to be paid when they bring a game to their buddy's house, why it won't work without the Kinect even though they don't have the space for it/don't care for it. Even with people like us, unfortunately I can imagine this still being successful. We "rallied" against always-on DRM, season passes, microtransactions, on-disc and day-one DLC before, and now we just accept that shit as being a normal part of the industry that we'll take but wish it wasn't there. It's no wonder Microsoft has the gall to believe they can push it even farther than all that.