Cloud development requires design oriented towards environment with reduced performance. With many virtual servers occupying one physical machine a lot of processing power is consumed by context switching, reducing overall performance of all virtual instances.
OSV is a new operating system designed specifically for instances running in the cloud, written in C++ (which, as a side note, proves that Linus Torvalds was wrong when he claimed that C++ is not suitable for writing a system kernel). OSV reduces a lot of overhead found in the traditional operating systems, like kernel memory protection. If you ever worked with operating system which does not use such protection (like AROS or MorphOS), especially on hardware with x86 architecture, you must have observed a huge performance gain on those systems. Of course the biggest drawback of this approach is that a badly written application can crash the whole machine. However, since OSV does not run directly on hardware, but on top of a hypervisor (such as Xen or KVM) such crash affects only a virtual cloud instance, not the whole server. Moreover, OSV runs a standard Java Virtual Machine, which provides automatic memory management and necessary level of protection by itself, so no extra effort from the operating system is needed to ensure software stability.
Will OSV become sucessful? It's hard to say at the moment, but it surely shows a new trend, where not only hardware and applications, but also operating systems evolve to fit the new reality which cloud computing creates. If you are interested in trying out OSV yourself, here are some instructions how to run an Amazon EC2 instance with OSV on-board.