If everyone has the input lag, then it's not really an issue.
....What?
Also, it's not really much different than normal input lag. Yes your local view won't update as quickly but the time it takes for the server to update is the same. Most of this is solved with input prediction subroutines anyway.
Dave, I understand your strategy is to make shit up and hope it makes sense and I'll admit it normally works out for you, but this is just utter nonsense and you should be ashamed for posting it.
gafferongames.com/networking-for-game-programmers/what-every-programmer-needs-to-know-about-game-networking/
Look at the bit titled Client-Side Prediction. In this case it would be on the server but the same principal applies. And all you need to do is loop the previous input until you get new input from the client.
Yes it will be slower by some number of ms but with a fast enough connection, it isn't too noticeable. I mean, its not like keyboard/mouse input data requires a lot of bandwidth. And that data only goes one way.
Also remember that while your local based game can visually react nearly instantly it still has to send your input data to the server, have the server process it, then send any corrections on position and status back to the client.
The only real difference with cloud gaming is that instead of sending status updates downstream, it sends a video stream.
-edit-
Wait, do you mean input lag as the lag between key press and visual output or key press and the system processing that key press only(before video output)?
-edit 2-
Well fuck. Looks like video games use the former definition of input lag and I use the latter. Sorry about that. In that context, yes, what I said is retarded and I'm ashamed.