It (Windows) still isn't the perfect living room experience. I use BigPicture on WIndows quite a bit, but it still has a lot of Windows jank that can sometimes mean I have to get up and mess with a keyboard and mouse - not something I want to do when I'm sat back with a controller in hand. SteamOS is designed to work with no interruptions with a controller. They can control the experience from top to bottom, things like OS to Game transitions are super smooth, no installing third part dependencies with different inputs, everything you need to access in the OS will be accessible with a controller. That isn't the case with a Windows based 'Steam machine'. Valve cannot modify the operating system to that extent.
SteamOS came at a time where Valve was clearly uncertain about the future of Windows, but also provided a potential way for them to break from Windows. Sure, it may not be competitive for 5 or 10 years, but that's okay, it doesn't necessarily have to be. It'd be great if it was, because that living room PC push would happen quicker with a better experience, but for now - we'll have to either have Steam machines that can be (dual) booted into Windows when necessary or simply just ship with WIndows. Remember, all the functionality of a "Steam machine" is built into the Steam client which is across multiple platforms. SteamOS is a bet on the future where it'll provide a more appropriate experience for the living room without all the jank of traditional desktop operating systems.
Steam machines in general are designed to be an out of the box solution. Plug and play, no need to mess around setting up a Windows sytem to be more living room friendly. Someone who isn't particularly tech savvy can buy one, plug it in, and it'll work and it'll be a good experience. Maybe OEMs could offer the option of a dual boot Windows solution for when a game they want to play doesn't support Linux yet, there is nothing technically stopping them. For a person like myself, the branded Steam Machines running SteamOS offer almost nothing, I'm interested and excited at the development of the OS, because I tried it back on the first public release and it seemed to make legitimate improvements even then, but it still wouldn't be for me, not yet at least.