Filled with the code of Doom
Here's the thing: the basic idea for the Steam Machine is incredibly clever, because Valve already have the entire library of Steam games available to them to sell. That theoretically gives them a massive head start over any other console manufacturer that might want to enter the market: the same day they start selling these things, there will already be a huge collection of games to play, and they don't need to win over developers to making games for their console, because plenty of companies (including Id!) are already selling games through Steam anyway.
Isn't this argument a little pessimistic? If we treat these devices as another console, its launch line up can't be worse than the Xbox One, Wii U, or PS4 is it? Even then, there's still the advantage of not having to re-buy the games simply because its a new platform. I do believe Valve could do much better if they forced games with already existing Linux binaries (all the ones using DOSBox especially) to work, but I know why they can't do that.
Except that none of that applies because they're going with a Linux-based OS. There are good reasons for doing this, not least the fact that using Windows would mean basing their product on a competitor's technology. Personally, I really like the idea of a Linux-based console. However, it kills their main selling point - the Steam library.
I'm sure Valve are doing all they can to try to make porting games from Windows to Steam more easy. Probably they're working on extending Wine to make it better for gaming. Once the actual consoles go on sale they'll probably attract more developers to the cause, too. But for now... well, it's been a year, and there's still not much there.
Don't misunderstand me here - I appreciate that there's no way at all that their touch controller is going to be as bad as a tablet is. But I just want to emphasize how truly, utterly awful touch screens are for gaming. The biggest growth in games in the past few years has been smart phones/tablets, and IMO the only reason these devices haven't already completely killed traditional portable consoles (PS Vita, 3DS, etc.) is that the touch controls place severe restrictions on the types of game that can be played. These consoles survive because they have physical buttons that let people play "real" games instead of shit like "Angry Birds".
On the other hand I'm fairly optimistic about the controller. It doesn't seem like they're trying to go an all touch route like you suggest. The touch pads are there to remove a level of imprecision made by physical joysticks but otherwise behave the same. It definitely looks like something that can work well and they're clearly designed to provide positioning feedback to the user. The touch screen on the controller is there to provide additional flexibility to infrequemently used commands similar to what can be found in many Nintendo DS games.
Touch screen controls and touch controls are very different.
Physical keyboards are better for typing than virtual ones. Physical buttons, d-pads and joysticks are better for gaming than virtual ones too. Valve still have buttons on their controller but they've gone down what looks like the wrong road for making a games console. I'm not saying that it's a guaranteed disaster, it just makes me hesitant that the idea is going to work.
This shouldn't be a problem. With the approach they're taking, it looks like Valve aren't actually going to manufacture the consoles, just do the software. The consoles will be made by existing hardware manufacturers. It seems analogous to Google's role in the Android ecosystem - they make the OS, but if your phone breaks, you call Samsung.
Another reason I don't think Steam machine will work is Valve's lack of tech support. I can call Microsoft, I can call Sony. Can't call Valve. It usually takes 2 weeks to hear from them and 2 - 4 weeks for them to fix your issue. So wtf? Sony will give you unlimited REFUNDS on shit games you buy for yourself but haven't play. Valve warns you that they give a CREDIT only 1 time you buy a gift for someone and never give it.