I used to work for a tiny gaming hardware company. Five million is enough for manufacturing and a couple engineers. If they are able to capitalize on existing molds for controllers (IE: they don't use new die) and they are able to use existing OS (Android) and they are able to crib some off of existing smartphone designs then they should be able to get this done.
I don't think it will be nearly as big of a deal as people made it out to be but they should be able to do it for the money they have.
The smart thing to do in their position right now would be to try and team up with MadCatz (or someone like that) and rely on their business acumen and management experience to keep things rolling.
That sort of deal would also acknowledge the inevitable - should Ouya get popular somehow every cheap hardware manufacturer on the planet will rip it off and probably do it better.