Those were unrealistic expectations. Why anyone even thought that was going to be the case is beyond me. I don't think they've once said it themselves they were going to chase after the console market. It's all about getting people onto their ecosystem with little to no hassle (not having to make your own PC). Anyone who wants to avoid paying for a new PC can just install the Steam OS, and have more reasons to spend money on Steam, since you're literally on the store 24/7.
While I also think the idea of a Steam console was wishful thinking, it frankly would have been the better idea. As I stated earlier, the pre-built gaming pc market already exist so the only thing new about any of this is the assumed (but not confirmed) small form factor standardization and SteamOS, which will be more of a detriment since it pretty much guarantees an additional $100 on the price tags of these machines in order to buy and install Windows (since the overwhelming majority of PC games don't run natively on Linux). On that note, unless SteamOS offers a significant (<-Key Word) boost in performance for games, it's highly unlikely many people will use it outside of those that want to PC game on their couch (and haven't already set that up through other means). An increase of 5fps over Windows isn't going to convince very many PC gamers to deal with dual booting OSs.
Except there is already a standard for most developers to shoot for... the consoles. How many PC Gamers have said that consoles have been holding PCs back? You don't think most developers don't shoot for what the consoles can do when they are all into multiplatform parity between PC, 360, and PS3? These boxes are just to make it simpler for people to get in the Steam ecosystem, and Valve's own box will probably be on par with the PS4 and Xbox One in terms of parts.
Developing games using the consoles as a standard doesn't change the fact that there are hundreds of thousands of PC gamers out there with a myriad of hardware configurations, ranging from much lower specs than consoles to greatly overpowering them, intending to play those games.
The idea was that Valve would put out a box that, like consoles, would be capable of running any game at mid-to-high tier graphics settings (not ultra/downsampling/ect.) for the bulk of the next generation. Ideally, a Steambox user wouldn't even have to mess with graphics settings at all as developers would simply optimize their game's to the known hardware specs. That was what I was mostly hearing people envisioning - PC gaming without the hassle of dealing with individual PC parts, graphics settings, or drivers (and gaining the ability to play RTSs/MMOs/ect., mod games, participate in DD sales, ect.).
Also, Valve will not be creating a retail machine. The machines in the OP are only prototypes for the beta testers.
