OnLive, the company that has spammed YouTube for the past seven decades with their ‘OnLive is could gaming. But what is cloud gaming?’ ads, is in a beef with Microsoft. Here’s the skinny: OnLive intends to use its virtualization technology top bring Office and Windows to your iPad.

The kicker is that it wants to do this, even if you don’t own the software proper. Obviously, this has raised some eyebrows. How the money would flow from user, to OnLive, to Microsoft is a question, and one that might scuttle the project. Microsoft, according to ZDNet, is up in arms.

We’re going to pretend for a moment that we aren’t excited to watch the fireworks.

Microsoft, in brief, thinks that OnLive is in violation of their licensing terms. Microsoft’s Joe Matz claims that a dialogue is ongoing: “We are actively engaged with OnLive with the hope of bringing them into a properly licensed scenario, and we are committed to seeing this issue is resolved.” That’s Microsoft’s way of saying that they are firmly in control of the situation; OnLive is being give a severe talking to, we presume.

Right, so how does this all break down? Essentially, Microsoft is leaning on the following two paragraphs of its licensing agreements:

“* Customers that want to work with partners to have them host Windows 7 in a Virtual Desktop Infrastructure solution on their behalf, can do so when the customer provides the partner licenses through the customer’s own agreements with Microsoft. The hosting hardware must be dedicated to, and for the benefit of the customer, and may not be shared by or with any other customers of that partner.

“* Microsoft partners who host under the Services Provider License Agreement (“SPLA”) may bring some desktop-like functionality as a service by using Windows Server and Remote Desktop Services. Under this solution, the partner is free to offer this service to any customer they choose, whether or not they have a direct licensing agreement with Microsoft. However, it is important to note that SPLA does not support delivery of Windows 7 as a hosted client or provide the ability to access Office as a service through Windows 7.  Office may only be provided as a service if it is hosted on Windows Server and Remote Desktop Services.”

Provided that OnLive’s service fails to jump any of those hoops, Microsoft is going to be on their back and up in their business. Our guess is this: Microsoft is going to get its chunk of revenue from the service, and force OnLive to use a few Microsoft technologies to provide the product.

Microsoft would love to see people use Windows and Office on their iPad, but it will get its pound of flesh. After taking on the European Union, I’m pretty sure that OnLive doesn’t a chance when stacked up with the Microsoft Legal Team.