People keep saying it's not for those who already have a beefy gaming PC but I genuinely can't foresee many people outside of that demographic buying it as an easy way to play their steam library in the living room. As a console alternative it's DOA due to it running Linux and thus locking you out of the vast majority of casual games, a list including FIFA, CoD, Apex and Fortnite. Millions of people buy consoles solely for those kinds of games, a fact that people online seem completely blind to because FIFA/CoD/Fortnite bad. If you're installing windows to get around that it instantly loses the plug and play appeal it's clearly going for.
maybe it'll see some interest from people with very old PCs that want an easy, and hopefully affordable upgrade, or people wanting to ease their way into PC gaming for things like mod support but I can't see this ending up as anything other than a niche product for PC nerds and people who like shiny new toys. I think a new and improved Steam Link would have satisfied the majority of what will become the Steam PC market.
I can't honestly put myself in the Steam Machine demographic, but just for fun I tried building a living room TV gaming PC in ************:
First try - no effort, enthusiast mini-ITX
CPU: Ryzen 7600 non-X - £157.97
Motherboard: Gigabyte B650I AX - £131.99
RAM: Crucial 32GB 6000 CL36 - £128.99
SSD: MSI M480 Pro 2TB - £130.99
GPU: RX 9060 XT 16GB - £329.99
Case: Silverstone SUGO 14 - £94.99
PSU: MSI MAG A750BN 750W - £59.99
Total: £1,034.91
I picked semi-premium components, nothing too silly, but still good. The SUGO 14 is obviously bigger (19.55L) in comparison to the Steam Machine (15.6*15.2*16.2cm 3.84L) but it has good compatibility (ATX PSU, 330mm three slot GPU, big CPU cooler if you want) and it should look OK in the living room as an anonymous black box. The Series X (6.8L) and PS5 (10.5L) are also much bigger than the Steam Machine and people put those in their living room, right? Also, this build is obviously an order of magnitude faster than the low-end components in the Steam Machine. It's also very upgradeable.
Second try - as cheap as possible
CPU: Ryzen 7500F - £120
CPU Cooler: Thermalright Assassin X 120 - £14.99
Motherboard: ASRock A620AM Pro-A Wifi - £101.62
RAM: Corsair 32GB 5600 CL40 - £113.46
SSD: MSI M461 2TB - £95.99
GPU: Sparkle B580 12GB - £193.00
Case: Lian Li A3-mATX - £59.95
PSU: MSI MAG A550BN 550W - £39.99
Total: £739.00
Still much faster than the Steam Machine, but a few compromises. The biggest one is the case, we have gone mATX to save some money. The Lian Li A3-mATX is still a nice case, comes in black, etc. but it's 26.3L.....I would still put it in my living room

. I've also gone with the AliExpress Ryzen 7500F, which can sometimes be had for approx £100. RAM is a problem, there's some stock less than £130 but it could disappear at any time. No DRAM cache in the SSD, still more than fast enough for gaming. The B580 is faster than the RX 7600, which itself is faster than the GPU in the Steam Machine. Also 12GB VRAM. PSU is C-Tier.
I could try to match the Steam Machine for size, but the case is a problem. The Midori 5L-V2.4 is 5L but it requires a Flex ATX PSU, therefore it's very expensive (£280 inc PSU, custom length PSU cables and PCI-E riser), not worth it IMO.
Realistically, I would probably go for the first build, but with the S300 Pro ITX case from AliExpress (approx £100) and an SFX PSU. It's very small at 8.5L, and takes 305*55*154mm GPUs (2.5 slot). CPU cooling is restricted to 60mm, but with 65W CPUs it should be fine. Smaller than a PS5, larger than a Series X, I think it makes the most sense.
If the 2TB Steam machine was £600 with the controller, I'd say it's probably a good deal.