In this paper, we investigate the degenerative effects of antenna correlation and keyhole on the performance of multiple-input multiple-output (MIMO) amplify-and-forward (AF) relay networks. In particular, we considered a downlink MIMO AF relay system consisting of an nS-antenna base station S, an nR-antenna relay station R, and an n D-antenna mobile station D, in which the signal propagation originated from the mobile station suffers from keyhole and spatial correlation effects. We have derived a closed-form expression for the exact moment generation function of the instantaneous signal-to-noise ratio which enables us to analyze the symbol error probability and outage probability of the considered system. We have shown that although the mobile station is in a poor scattering environment, i.e., keyhole, the relay channel (S → R → D link) still achieves a cooperative diversity order of min(nR, nD) provided that the channel from the source (S → R link) is keyhole-free. This result is important for the radio system designers since under such a severe scenario it is unnecessary to deploy a large number of antennas on the relay station (nR) but only requires nR = nD to obtain the maximum achievable diversity gain.