It just looks like it'll be an HTPC-type thing that happens to play PC games. Honestly, I don't see the problem with that. If Steam OS works well and you can get that kind of utility from it, I don't see the issue.
The only issue I see is that Steam won't have any tie in to cable TV media.
Microsoft and Sony are both fighting to be the default input device on the TV. They started with Netflix, Hulu, Youtube and are now adding apps for live streaming of cable TV with participating cable companies. I think they eventually hope to be a DVR as well.
As someone who has used HTPCs for awhile and saw how long it took to get cablelabs certification for the first cablecard tuners, I doubt steam won't be anywhere near there, at least not right away. An HTPC that can't play live TV from the cable company, while still useful, is much less cost-effective than a Roku box, apple TV, or any number of devices like blu-ray players and older xbox consoles that people already own.
Now, if somehow Valve gets the certification to use cablecard tuners in SteamOS and make a solid replacement for windows media center allowing me to downsize my gaming PC and my HTPC into one box that does both - I will be very excited. I do realize, however, that I represent a very small userbase of WMC and this probably won't be happening.