It would still be layer 7. They are sending a compressed package of information down over an internet connection, which is TCP/IP. Its basically a file transfer. OSI layer 1 is the physical hardware layer, like network cards, cables, etc. For anything to run on something like that, it would be very basic, almost like a lightbulb, and wouldnt be worth the trouble. What the service online will apparently be sending is the information in waveform to turn the stepper motors on and off (waveforms as stated above), and will look something like this:
This information will be compressed into a file(s) and sent down to the glowforge over an internet connection.
It seems they are trying to drastically reduce the amount of components necessary in the construction of the glowforge, which is why they are doing all the heavy lifting on the server side. They have already stated they will not have an RJ-45 jack on the glowforge, just wireless. So basically all they will need is something on board to manage the wifi connection, receive the files, capture and transmit the images from the camera, and run the motors/laser tube. This could all be accomplished with an aduino which is what inventables is using to run their xcarve. Dan is friends with the guys from x-carve and has built a good portion of glowforge in a similar manner, so it would make sense that they do it this way.