If they don't try to make it a traditional console, I think it could be quite successful for what it is ...
Producing a console that sold 2.5 tp 5 million units per year would be very bad but if the Steam Box isn't looking for licensing fees, is content (mostly) getting ports of games, and publishers get high margins by cutting out retailers it could actually be well supported. If hardware doesn't have to be a fixed configuration, different manufacturers (including gamers themselves) could build hardware to meet the changing needs of gamers and the people who are willing to spend whatever it takes to have the best graphics could do it.
While I wouldn't ever expect a system like this to sell like a popular console, it could actually have a pretty large impact on high end consoles, in particular late in the generation. Basically, if the people who were willing to spend $600 on a PS3 started buying a $600 Steambox in 2009 it could have a significant impact on system and game sales.
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