This is becoming more common in the enterprise. And it makes so much more sense in that environment (and where M$ makes most of their money - business side, not consumer).
The consumer market would be trickier to implement with this model. Large portions of the US are still stuck with trash tier isp service.
Hard to say. In the enterprise it's still a windows base that's heavily locked down with group policy. You then use that to connect to your virtual environment.
For the consumer side though, maybe an embedded windows that's effectively read only, that would then give the option to connect. Or, something like pxe boot handled by eufi. I highly doubt theyd try to leverage something like Linux or even bsd for it. But again, the consumer market would be a harder sell for this, due to our overall garbage internet.