Distributed interactive applications (DIAs) such as online gaming have attracted a vast number of users over the Internet. It is however known that the deployment of DIA systems comes with peculiar hardware/software requirements on the users' consoles. Recently, such industrial pioneers as Gaikai, Onlive and Ciinow have offered a new based distributed interactive applications generation of cloud (CDIAs), which shift the necessary computing loads to cloud platforms and largely relieve the pressure on individual user consoles. In this paper, we take a first step towards understanding the CDIA framework and highlight its design challenges. Our measurement reveals the inside structure as well as the operations of real CDIA systems and identifies the critical role of the cloud proxies. While this design makes effective use of cloud resources to mitigate the clients' workloads, it can also significantly increase the interaction latency among clients if not carefully handled. Besides the extra network latency due to the involvement of cloud proxies, we find that the computation-intensive tasks (e.g., Game rendering) and bandwidth-intensive tasks (e.g., Streaming the game screen to the clients) together create a severe bottleneck in CDIA. Our experiment indicates that when the cloud proxies are virtual machines (VMs) in the cloud, the computation-intensive and bandwidth-intensive tasks will seriously interfere with each other if not handled carefully. We accordingly capture this feature in our model and present an interference-aware solution. This approach not only smartly allocates the workloads but also dynamically assigns the capacities across VMs.