Seems like it just uses raytracing to get where the ball will be. I think for ai to be fun you need to give the impression at least that its not "cheating" which is essentially what its doing.
Also having the ball fire from the halfway line to start is a bit unfair since if you can't get the paddle to it in time the ai gets the point for not doing anything. If its serving it should start from the ai paddle. In Pong the ball is stuck to the paddle until you press the mouse in which case it is released, this allows you to created the angle of shot against your opponent.