I think we can blame the Brits, ultimately, for this usage, as they stand on a queue. and yes, on line in this sense is from NYC . (or the NE? in any case, it's just a regional variant.)

the computer usage dates from 1950 and began its life hyphenated:
1950 W. W. Stifler High-speed Computing Devices (Engin. Res. Associates) ii. 7 In on-line operation the input is communicated directly‥to the data-reduction device.

edit: but the latter use stems from earlier uses such as a railway line, or power source coming on-line.

Last edited by tsuwm; 08/30/2011 12:10 PM.