But if you factor in the cloud gaming aspect, they could pull it off. Consoles are very powerful machines in their own right.
The cloud is just for storing the information, and it's only used to hold your personal save data. A cloud couldn't hold the entire database of every single item, mob, quest, npc, recipe, ability, resource, node, mount, etc. There's just too many things to process all at once. A console can't handle that yet. It's not a problem with storage, it's a problem with processing all that info.