The aesthetics are fine and I wouldn't be surprised if the hardware ended up as powerful or moreso than current consoles, people put up with way worse in the living room. I don't see why the OS matters either, its just how many compatible games can it deliver and that depends on what kind of weight Valve can throw around. No reason it couldn't run Windows too, some people have speculated that a higher tiered SKU might do so. If they were a smaller company I'd be dubious but they have an incredibly large customer base. HTPCs are expensive to build and the prebuilt options (Zotac, Foxconn) aren't powerful enough for the kind of gaming most want to do. It has a lot of crossover market appeal unlike the Razer thing posted in the news story below this one. If they could get external videocards (Thunderbolt, maybe in a year?) finally sorted out then this sort of thing would be ideal even.
They could even go one step further and integrate some home server software, that would be pretty crazy. Finally lets not forget this is a first effort, the first Xbox was 3/4 off the shelf parts and a total loser. It sounds like they will be smart enough to sell this at a profit so hopefully there would be a second gen at some point. I guess we'll see! Exciting times!