It could work if stuff is hosted in the same country/city as...

It could work if stuff is hosted in the same country/city as players, as the lag would still be less than playing on a US server, which Aussies have had to deal with anyway for decades with games like WOW. With FPS games I guess it's far more critical.
But still, the resources required would be INSANE, as you'd need at the very least, console-equivalent hardware per player just to play console-level graphics games. How much are people really going to pay per month to play games?