Being within 1000 miles of where the games are located won't help with video compression/decompression latency. That latency would be there even if you're 10 feet away.
They need to show this outside of a closed network. As far as we know, in their closed and small network test, the video probably wasn't compressed at all.
But if they're going to get down to 1.5mbit for SD and 5mbit for HD, they're going to need some serious compression.
