Valve is really, really good. (Or their opposition is really bad. I don't care which way you look at it.) They took over the PC market and the likes of Microsoft, Activision, and EA were never able to do a thing about it, even though they're many times larger than Valve. If you want to do AAA business in the PC realm, you have to pay tribute to Valve. Getting your AAA game on Steam is more important than getting it on the shelves of Wal-Mart or Gamestop.
Now this PC platform juggernaut is taking a swing at the console market.
The console realm is murderously difficult to enter. You need good hardware, and it needs to be cheap. But it can't be cheap until you're sure you're going to sell a lot of units. But how can you sell a lot of units when you don't have a userbase yet? Nobody wants to buy your new console because it doesn't have any games yet, and nobody wants to make games for it because it doesn't have any market share. You could try cutting a deal for exclusives with publishers, but why would a publisher return your phone calls when you have no users, games, or hardware? You've got multiple overlapping paradoxical requirements.
But note how Valve is routing around these problems. They're fixing the lack of titles by making a platform that will run (some?) PC games. Not only will there be games for the Steam Machine at launch, but there are games for it now and you probably own some of them already. They have a userbase and the userbase has games. They're getting around the hardware problem by using off-the-shelf PC parts and a free (both kinds of free) operating system.
One last thing to note is that a lot of people are confused about the new Steam controller. A lot of people had the same reaction I did to the "dual trackpad" idea, which is to look at it like some sort of hilarious misfire. There's no way you'd want to play a platformer, shooter, or a strategy game using just a trackpad. That would be madness.
But these aren't just trackpads. They offer haptic feedback. Unless you're an academic or involved in interface R&D, you've probably never touched a haptic interface before. Calling these things "trackpads" is kind of like calling the Kinect a "camera". Technically, true, but kind of overlooking the most important details.
Are Steam Machines going to be a rival to the Playstation and the Xbox in the living room? I can't say one way or another. I have no idea how many people are looking to bridge the gap between their PC gaming and their living room gaming. But if that market exists, Valve is set to grab it. This is an exciting move.
Having said that: If they don't have Half-Life 3 as a launch title they're crazy.