We reported last month on the legal and licensing issues surrounding OnLive and its OnLive Desktop for iPad, a freemium offering from the cloud gaming company that offered iPad users a full Windows 7 desktop experience complete with Office and the ability to watch Flash content. The company made a big entrance into the Windows/Office on iPad space in January and announced its premium and business plans the following month.

More recently, however, Microsoft announced that OnLive was violating its licensing agreements. Microsoft even went so far as to accuse OnLive and any OnLive Desktop users of illegally pirating Windows 7.

OnLive appears to have learned the error of its ways. Over the weekend, the company quietly adjusted its service to be compatible with Windows licensing.

The costs of not complying with HIPAA (the 1996 Health Insurance Portability and Accountability Act), which includes self-reporting of data breaches, can be steep. Blue Cross Blue Shield of Tennessee recently finalized a settlement with the Department of Health and Human Services for $1.5 million for a recent breach (on top of a $17 million price tag for the investigation and remediation actions). HHS seems to be making a a show of high profile enforcement as a way to encourage better compliance among smaller organizations, including hospitals and individual medical practices.

This raises the question of whether or not using the iPad in healthcare increases the risk of privacy violations. If so, will a show of force on the part of HHS dampen the enthusiasm for the iPad in healthcare?

Earlier this year, OnLive debuted its OnLine Desktop app for the iPad. The app offers users a virtual desktop environment that includes Windows 7, Microsoft Office, Adobe Reader, and Internet Explorer (which allows iPad users to watch Flash-based web content). The service comes in both free and paid versions that include 2GB of cloud storage and OnLive plans to expand the service with more advanced plans for both end users and for businesses.

While users and reviewers have been largely happy with OnLive Desktop, it seems that Microsoft isn’t. After being mum on OnLive’s decision to release the app and service, Microsoft announced this week that it views OnLive as violating its license agreements and essentially pirating Windows.

At issue is the draconian puzzle that is Microsoft’s licensing system and how the company charges for virtual desktops.