back_by_demand :
Jgriff, it will only be a viable alternative as an operating system when it can do more than just run games and basic allowed apps. Furthermore it won't even be a viable gaming only platform until it can play a higher proportion of the Steam catalogue than its current 10%. Sure it has potential, but I think your "until now" statement is very premature. Ok maybe supporting the whole back catalogue may be difficult if not impossible, but if they can at least ensure all new releases from Steam can work it is a great advancement. If however new games continue to be developed and released in a 9/1 ratio in favour of Windows then regardless of the promise and potential nobody will use it because it is a means to an end and if paying extra for Windows means you can play the games then people will pay whatever it costs. People don't want free, they want something that works.
Part of the advantage to this is that games designed for Steam OS will run perfectly on Steam for Linux as well.
Anyone wanting to run additional apps should just use a standard Linux distro like Ubuntu or Mint. This is primarily designed as a console replacement and therefore addresses those features only.
Most other operating systems "work" just as well as Windows. The only advantage Windows has is software compatibility as a result of a large user base and virtual monopoly. The biggest problem with Windows is that no one really wants to buy it, they have to because there aren't alternatives with the same library of applications and developer support. If and when that changes, "free" will be the deciding factor and therefore what gives something like this an advantage over an overpriced solution like Windows.
If I were Microsoft, I would be scared to death. All it would take is a few developers to make some AAA titles for this thing to start a tidal wave. Once a few users come, more games come and then even more users. What is Microsoft going to do when there is a free alternative that offers the same application library? It simply wouldn't have any way to justify buying Windows to gamers.