The problem with this idea is ping. There are connections fast enough to send/receive live video at rather high qualities, but there will always be ping (unless you find a way of sending information faster than light

). As Green Marine said, there will not be any clientside prediction in this system which would be very annoying and noticeable even on very fast connections: input lag caused by input hardware (dunno, 5ms?), your input is sent to the server (network lag, average ping at let's say 40ms) + input received at server, server renders and compresses image (tiny delay, say 15ms) + image sent back to client (bit longer, maybe 60 ms) + image uncompressed on client (10 ms?) + image rendered to a screen with a response time of 4ms
Total: 134ms delay for any input action until it is shown on the screen. At this point it'd be extremely unplayable, mostly because of aiming which people would probably find ridiculously hard and annoying already at a ~40ms delay (?). Also, there is no antilag which means that when you shoot a target which is in your crosshair locally, it'll take 45ms before the input is received at the server which should be well enough for the enemy to move away from the crosshair in many situations. In LAN with really short latencies this might work, but I doubt it will for fast paced games like Nexuiz over the Interwebz.
Edit: Idea on how to overcome bandwidth problems: How about you only send some very basic stuff of the scene and still let the client render details such as textures? This means moving further away from your idea though, and just closer to whatever we already have right now

Sure makes eg. aimbots easier again, but they should be just as possible to construct based on the live video feed (scan for patterns looking like players, or if fbskins are on, scan for the same color as players have and aim towards that). Same thing goes for triggerbots, and probably strafebots too, which are about all the worst cheats you can create for Nexuiz (wallhacks aren't very effective due to serverside culling).
Edit2: Just had a great idea, what if you would send a full 360 degree texture of the view from the player position, and let the client look around in this sphere freely. Hud and weapons would still need to be drawn locally, but there is no way to cheat based on info you get from there. This way there would be no mouse lag, and you could create an antilag system by sending the coordinates of the point at which the player clicks and have the server check if it hit a player or not. Movement could *maybe* feel responsive if the client would apply distortion effects/interpolate between the frames in some clever manner based on which movement keys are pressed, until it receives a new image from the server. Heck, the server could maybe even predict where the player will be after [insert ping here] ms, and send this picture instead. This solution would sure be fun to see in action, but probably requires huge amounts of bandwidth, processing power and coding effort
