Update 4: OnLive has finally issued the following statement:

We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive's apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.'s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services.

We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive's businesses. Now that the transaction is complete, we are able to make this statement.

So, there you have it. While this is still an insanely bizarre situation, it looks like at least for the foreseeable future, OnLive will continue to operate its services. Unless, you know, lying to millions of customers is part of the shady business dealings that the CEO has been alleged to be a part of. What this means for OnLive as a company, however, is still anyone's guess. And that identity of that mysterious third-party buyer? If anyone knows yet, they're not telling.

Update 3: TheVerge is saying "at least 50%" of the staff at OnLive was let go this morning, confirming Engadget's previous figure. However, the firings came after an acquisition of the company was finalized - meaning the new owners are the ones doing the people-purging. Apparently, money at OnLive had gotten extremely tight in recent weeks:

There were signs of it because budgets had been slashed and there were very long holds on getting business terms signed off on... but the expectation was 'oh Steve's going to go and get another round of funding.' There were a few people hoping for the acquisition because that's really the end game, but if you were reasonably smart you knew that the likelihood of that was pretty low.

The party that bought OnLive did so, according to TheVerge's source, for the purpose of acquiring its patents and other intellectual property. It's likely that the company will continue with a skeleton crew of only 20 employees. That doesn't bode well for OnLive's continued existence as a service.

Update 2: Now an Engadget insider that was fired from OnLive this morning is saying "at least 50%" of employees have been let go, and that the company will undergo an acquisition by an unnamed 3rd party. Laid off employees will receive no severance package, and those holding private OnLive stock will find that it is now "essentially worth nothing." Yikes.  The source goes onto claim that there was no way OnLive could keep up with an alleged monthly operating cost of $5 million, and that an acquisition was necessary for survival, along with the already-mention ABC (assignment for the benefit of creditors) that will liquidate certain parts of the company.

Original Article: According to some uncomfirmed reports from around the web, OnLive may be closing up shop today. As the story goes, internal emails have been forwarded by one or more current OnLive employees that state "by the end of the day today, OnLive as an entity will no longer exist." Rumors are that the streaming gaming service will be re-formed into a new company. Somehow, though, all the current employees are still supposedly going to be fired.

Of course, there is one source speaking to reporters that contradict the rumors: OnLive. According to a statement sent to Joystiq and VentureBeat, the company had this to say:

"We don’t respond to rumors but of course not.

The exciting news is that the first VIZIO Co-Stars (Google TV stream players) with the OnLive app built-in have just arrived in customer homes, and our second of three 'Indie Giveaway Weekends' is going on now. OnLive users can get a free copy of the award-winning games Space Pirates and Zombies and SpaceChem (more details on our blog here: blog.onlive.com)."

Well, that certainly makes this a whole lot more confusing. From what we can tell, the rumors originally surfaced from a single email sent by an OnLive employee. According to game developer Brian Fargo, he received this email at 11:37 am:

I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist. Unfortunately, my job and everyone else's was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service.

It has been an absolute pleasure working with you and I’m sure our path with cross again.

Apparently, very shortly after, the OnLive employee sent a "recall" message. No word yet on what was said in the message. It's unclear if these are disgruntled employee shenanigans, or if OnLive is simply trying to keep quiet a huge corporate restructuring that could cost jobs.

Meanwhile, Game Front is reporting that its independent sources have confirmed that, at the very least, layoffs have indeed happened. Of course, in the world of tech rumors, "our reliable sources" are a step above "Digitimes has reported" in terms of reliability, but the site reiterates that its source is not the original email that was sent out to several outlets. According to Game Front, here's what's happened:

Game Front has been able to confirm independently, via an extremely reliable source who will remain anonymous, that these Layoffs did indeed occur, beginning after 10 AM Pacific Time. We have also confirmed that the whole company, (minus some key upper management, details still not known), has been let go.

What does seem to be clear is that, no matter whose side of the story you choose to believe, OnLive the gaming service isn't going to shut down tomorrow, so no need to panic over your subscriptions. OnLive's official statements continue to tout new games coming to the platform as well as its recent partnerships, and even the initial email that sparked the rumor flood mentioned "titles that will remain on the service."

It's worth pointing out that it's incredibly unlikely OnLive will disappear entirely overnight. While it's unclear whether or not layoffs have, in fact, happened, OnLive's service has "tens of millions" of global users, as of November 2011, according to CEO Steve Perlman. The very general figure was given out shortly after OnLive's initial UK launch in September of the same year. Perlman stated that "growth in the UK has been faster than when we launched in the US...It went beyond what we ever imagined. Overwhelmed is not even the word. The numbers in the UK are ten times what we projected."

Of course, it's a CEOs job to tout the success of his own company. Because OnLive is a private company, we can't take too close a look at the financials of the company. However, the recent deals being struck with Vizio and Ouya suggest, at the very least, that the company isn't sitting still. Perhaps a massive restructuring is taking place behind the scenes. Maybe the company is even being bought out by another. However, we can pretty safely say that whatever's going on internally, OnLive the gaming service will probably still be available tomorrow. Even if the management running it isn't it.

Update: Kotaku is also reporting that a source speaking to the gaming blog says OnLive is preparing to file for ABC bankruptcy in the state of California. This would give OnLive some level of protection from creditors without forcing them to close down shop entirely. Through what we can only imagine is some fancy legal and accounting maneuvering, some of the employees of OnLive will reportedly be funneled into a new company to be created from the remainder of OnLive. So, while "everyone" will technically be fired from OnLive, some of the same people will apparently end up working at the new company on the same service, with the same customer base.

This is all, as of yet, unconfirmed by OnLive and could be nothing more than hearsay. However, it seems like the most likely possibility. OnLive has too many users to have simply dried up at this point, but it is very easy to imagine that a cloud gaming service acquired too much debt too quickly to be able to stave off bankruptcy. We'll likely be hearing from OnLive at some point to address the rumors. If they're true, perhaps on Monday after the company has had a chance to sort everything out and decide what it wants to tell the press. If this is all just an elaborate and convoluted misunderstanding, we'll probably hear from them a bit sooner. Either way, when we know, you'll know.