There is nothing technically missing to have a web hosted OS, although it
would be slow. The way most all remote OS hosted systems work is to have
the basics installed on the terminal end, and all else loads from the remote
end. The initial X-Terminals for Unix Systems were made like this, as well
as all the IBM 3270 displays ever produced.
The question is why? Most remote hosted systems do that for hardware
simplicity at the terminal end. With new PCs in the $300 range, cost
advantage is dropping fast. Then there are licensing concerns, as well as
reliability. If the web is down, so are you.
What we have today are locally hosted OS systems with auto update, via MS
Update, from the web. that's not a bad compromise.
Ed