Based on my experience with PSN, I don't have a lot of confidence in Sony's ability to smoothly stream a game, but I guess we'll see.
The bigger thing I haven't seen too many people commenting on (if this really is about backwards compatability) is how they'll charge for it...
There is no way for them to tell that a PS3 game that you have is actually yours. There were no unique passes in place for any of these games, so you're not going to have a digital record of ownership anywhere, and they can't just let you pop a disc in to check - because you could have rented or borrowed it. Its the same conundrum they had with the idea of letting people transfer UMDs to Vita.
Essentially, people are going to have to pay for the games they want to play, or they're going to have to pay per play, or subscribe (they could make some games part of the PS+ deal I guess). Essentially, no matter how good the streaming is, I think people are going to be kind of turned off when they realise they have to actually pay for something.