You can achieve a lot by specifically optimizing your game for a particular machine and Valve has such extreme market power that every game studio releasing on PC will make sure that their game looks and runs great on the Steam Machine.
This machine is more limited than I expected e.g. only 8 GB VRAM, however because of Valve's market power all game studios will see 8 GB VRAM as the new limit. Every game will now aim to look and run great with only 8GB VRAM.
As a poor gamer, I truly appreciate Valve setting such a low standard for gaming PC hardware. Game studios were certainly already looking at 16 GB VRAM + 32 GB RAM as the new standard for AAA games. That is now history.
It could have been something, but the target market is precisely the market that will look at the price and say "Nah".
And as one point of clarification, game makers by and large still aren't targeting Linux. This machine works via the absolutely excellent, almost magical Proton (https://github.com/valvesoftware/proton) that lets you run most of your Windows library on Linux, largely seamlessly.
I disagree that the target market won't accept the price. I see the target market as less technical people, who don't care about hardware specs, but just want to play Steam games without issues.
The price is in the same region as an iPhone, and if you care enough about PC gaming to buy a gaming PC at all, you are certainly willing to spend at least as much money on it as you spent on your phone.
Most games are tested on a steam deck nowadays.
Ftfy
https://pcpartpicker.com/list/brbFsK This is $50 more but it has 1TB of storage and a newer generation of both CPU and GPU and will absolutely destroy it.
I'm sure you could get actually easily cheaper and better even, I haven't followed the market a lot lately.
Prebuilt are likely to be even better deals because they will use some cheap noname parts for the RAM and the PSU, which is mostly fine.
It's not huge, it's a mid-tower (admittedly, not a pretty one). But the real benefit is that it is upgradable. Basically you are trading off user serviceability for "it just works" and the form factor.
Another thing the Steam machine has is HDMI-CEC support, which is nice if you intend to use this with a TV, perhaps with KDE Plasma Bigscreen. But $1000 is rather steep for a console/HTPC.
Let alone having to put the PC on the floor because it won't fit anywhere else in the living room.