Something else that occurred to me. One of the most common refrains of the glorious PC master gaming race is the ability to mod games. It seems like that would be severely diminished in a box running a custom Steam OS. I know Steam is pushing the mod workshop as a more automated way to install custom mods, but what about injectors like ENB or SweetFX? Are those even supported by the Steam workshop right now? Skyrim Script Extender isn't, and that was required for some of the major Skyrim overhaul mods. Granted, modding is usually somewhat of a hassle, which already goes against the idea of trying to simplify things like a console does, but whenever someone talks about how great PC games look next to their console counterparts, invariably they're including mods. I could see someone buying a Steam Machine then getting pissed that their game looks nothing like Gioknight's screenshots.
Actually, that's the fundamental difference between consoles and PCs; convenience. Consoles sacrifice customizability for convenience, while PCs offer nearly unlimited customizability at the expense of a "plug in and go" experience. Trying to bridge that gap in the way the Steam Machine does is just exposing the flaws of both systems; it's less convenient than a traditional console and less customizable than a traditional gaming PC. Where's the market for that?