His clarification says it will be more "steam deck-like" which I agree with. In my mind, that means having a default UI like Steam that gives it the console experience but behind the scenes it just runs Windows which allows for installing whatever you want. I do not think Steam will be integrated into a closed system because Gabe Newell has always been an advocate of open platforms and I doubt he would allow that. But you could be right and the OS will integrate itch.io and/or EGS as those are the stores Phil Spencer mentioned. If that is the case then they might as well not even bother. If they are trying to bring in PC gamers to Xbox hardware, it is Steam or nothing.
I was thinking this as well, but in light of the recent Vanguard BS with Riot Games seemingly (potentially) bricking PCs, not to mention all the various 3P DRM & anti-cheat stuff that could cause kernel-level issues, I don't know if Microsoft may quite take that exact approach. As in, something running straight-up Windows.
It might be more likely they make a custom version of Windows that is locked down to some extent so it's not quite as open as a straight-up Windows PC, but they'll still let multiple storefronts run on it. So, the Xbox storefront, the Windows storefront, Steam, GOG, EGS etc. They might let general Windows apps work on the device, but they'll probably have to be authenticated by Microsoft first, but in a storefront-agnostic way. So some type of custom security layer maybe otherwise not present on regular Windows.
That way someone probably doesn't end up accidentally installing something like Vanguard on their Xbox and screwing their system up, or some other crazy PC Windows app that could cause issues for a less-informed user. After all, they probably want those devices to "straddle the line" between a console and PC. Something with the ease-of-use of a console and the modularity (and productivity features) of PC, but without the micromanagement in settings and driver updates, security, BIOS/UEFI tampering etc. of a typical gaming PCs. It might be too much to ask that with a raw version of Windows running in the background on an Xbox device.
Also IIRC, the current Xbox systems already run a modified version of Windows. So MS would just need to expand on that and open it up a bit more. Make the UI friendly for KB&M, have built-in apps for Steam/GOG/EGS/Windows Store etc., have a storefront-agnostic authentication process for security/compatibility purposes (i.e you should be able to download Google Chrome from Windows Store or Steam, doesn't matter), and allow multi-application performance options (i.e can have a game, movie, web browser etc. running simultaneously). With the last one, I guess things like Quick Resume would be beneficial.
Basically it'd be easier for Microsoft to take what they already have with Xbox on the hardware & OS front and expand it to be more PC-like, than take Windows and consolize it. But, they could backport certain things with the next-gen Xbox device(s) to Windows updates. Even so, I'd otherwise expect a very much PC-like business model, so pricing would be higher than an actual console at similar performance. That's why I wouldn't be surprised a next-gen Xbox SKU doing the things suggested here, with say PS6-level base specs, would probably cost something like $699 or $799 instead of $499. Could also throw in a partially discounted year sub to Game Pass to some SKU to sweeten the value proposition.
It'd also mean they have to get rid of the online paywall, but I don't think anyone would be upset with that.
