That's just seems like a silly claim to make.  If anything, PC quality has decreased since multiplatform sharing as games stopped being optimized soley for PC.

Valve has already said they won't make any exclusive content for SteamOS. 

Low volume release with low volume sales so, no. I don't think it should be considered a flop.

I'm really looking forward to steam os. It will bring down the price of PCs by not needing a licensed windows operating system, improve optimisation of games and give users a gui much more orientated towards end consumers in the home. They already claim 100s of titles run natively on steam os and there will be streaming support for others.

As the operating system becomes established I'm sure many will buy a steam box but that won't make up the majority of the market.

Windows is so utterly awful, destroying much of the performance of PC's with its bloated size and overly complicated processes. A fast lean operating system for x86 would be hugely beneficial to most consumers. I would urge people to support Steam OS because PC gaming will improve because of it. It might take 3-4 years to become established but at the end of that time I doubt there will be many that want to go back to Windows.

It makes no sense to use a business/productivity type operating system for the basis of a gaming system.

Technical aspects of a game are one thing but can you honestly say that the PC market was thriving back then in the late 90's ? PC was losing shelf space and that makes it clear that PC's used to be of lower quality experience than consoles back in the day. 

They are going to flop thanks to a lack of Half-Life 3 and Left 4 Dead 3!

As a PC gamer in the 90's....
PC gaming wasn't what I would call "low quality" back then, in-fact with my rose tinted glasses on, would consider it to be the golden era, there was almost half a dozen PC exclusives launched every month!

With titles such as Master of Orion, Dune, StarCraft, Diablo, WarCraft, Settlers, Sacrifice, Evolva, Battlezone, Age of Empires, Freelancer, Freescape, Starlancer, Wing Commander, Arcanum, Icewind Dale, Neverwinter Nights, Baulders Gate, Battlefield, Black and White, Anno, Mechwarrior, Caseser, Chrome, Civilization, Alpha Centauri, Comache, Command and Conquer, Dark Reign, Total Annihialation, Elder Scrolls, Deadlock, Descent, Quake, Unreal Tournament, Doom etc' etc'.

And if you ran with a 3dfx voodoo, you had Glide, you could run at 1024x768 resolution with 2x Voodoo 2's in SLI and you had the best-in-class image quality and performance when most console games were 640x480 or lower and only 30fps, in-fact back then you could run at a resolution equal or greater than some Xbox 360/Playstation 3 games!

These days... It's all crappy lazy console ports with very little time or effort.

As for SteamOS, I learn't not to doubt what Valve could do, when steam launched I laughed and thought it would fall flat on it's face... 75 million users later...
So, I'll take a wait-and-see approach.

Up until about 99... sure?

Late 90's sure.  A drop didn't happen until 2000.   Coincidentally around the time MMORPG's starting blowing up, making retail less important.

Also right around the time digital started being seen as a viable market. (Though small at the time).   

Steam debuted all the way back in 2003.

PC Retail continues to drop... as retail becomes more and more irrelevent.  

Gameplay quality wise... the best games on PC aren't on consoles if you ask me... and as I imagine most PC gamers would agree, based on revenue generation of big franchises.

If we use your metric of money... League of Legends, WoW, Dota 2, Civilization.  The big PC revenue makes COD look lame by comparison. 

Which your revenue based arguement seems to argue is the pinacle of console gaming.

That's not even getting into the casual juggernauts.

In favour of SteamOS:
1) Nobody forces the users to build just expensive SteamBoxes and users to buy just expensive ones
2) Users can build their own SteamBox downloading or getting in any other way SteamOS and following Valve's guidelines: http://store.steampowered.com/steamos/buildyourown It's still in beta, when it will be the definitive version I guess even installing will be simpler
3) It's Linux based, installing it in dual-boot with Windows will be an option in the custom install
4) It's Debian Linux based, so it will have a UNIFIED SW installer better than anything available for Windows, even for people building it themselves, after the initial effort, life will be easier each time they want to install a new game, they'll even be able to install many games simultaneously
5) Just like consoles, being streamlined for gaming, also low-end SteamBoxes will offer decent performances
6) Being a PC, with or without dual-boot it will offer PC versatility (that by no means requires a bloated Windows to be achieved, a PC with any recent OS is enough)
7) With PC-PS4-XBOne substantial HW unification, adding SteamOS porting to dev tools won't be terribly difficult
8) Valve could fund WineHQ, and give them the necessary infos, to better their emulator for the old games of which the potential sales wouldn't justify money and resources needed for a port, and just a few millions could be enough for a huge result
9) As PC gets smaller relatively to the whole IT market, the share of users tied to libraries of existing legacy Windows games and other Windows SW decreases, Windows is still near-monopolist of classic PC, but it's not necessary anymore for new users
10) Just like Vista after XP, Win 8 is a weak successor of Win 7, and even if Win 8 is far from being as bad as Vista when it was just launched, this time Linux is a lot more evolved towards user-friendliness, and what's more, a big gaming SW and services company is backing it.

We'll see, it won't be easy, but not an automatic flop, either, I'm curious about the outcome.

Steam Machines will have a hard time for sure, they're kind of an inbetween product that are neither here nor there, in my opinion and I haven't really seen much incentive for me to want one yet, and that is coming from possibly the biggest Valve fan in the Northern hemisphere.
My initial and main concern is the pricing though; they seem to place themselves above the One and PS4 in price on average, you get far more powerful hardware but that is certainly not a guarantee for sales (see original xbox for an example) and the somewhat wonky gamepad will likely turn a few people off, that also symbolizes the inbetween nature of the product for me; it ends up somewhere between traditional and touch and might very well miss both.

Gabe Newell and Valve; I love you and everything you do to bits and I consider this company to be the most positive influence on gaming in general in the past 20 years, along with the likes of CDProjekt, but I think you're making a big mistake with these machines, I simply cannot picture a sizeable market for them.