The downside with them stepping away from dedicated hardware to a licensor, is you stop having a fixed/semi-fixed target hardware platform. That combined with target hardware specific optimisations are a large part of why traditionally games have run substantially better on a console with a lower overhead OS and optimised-for hardware, in comparison to a more generic PC system, and that's STILL relevant.
I mean, the Switch 2 is arguably less performant in terms of numbers, in comparison to the Steam Deck, however as users will attest, games are coming out looking and running better on the Switch 2, because they've been able to target and optimise for it's hardware specific features; and I've no reason to think that won't become more the case as devs become more used to the new architecture. Nintendo themselves did wonders with the Switch 1, which was essentially mobile phone/tablet hardware from 2013... consider some of the games that ran on it and what they achieved has been remarkable.
Microsoft stepping away from Xbox dedicated inhouse platform hardware is actually a bad thing for them, IMO.
I mean look at Sega; they stepped away from the hardware/console manufacturing business, and they're a shadow of what they used to be.
I don't mind them doing other licensed stuff on the side, but dropping the core Xbox hardware would be a bad mistake IMO.