I very much disagree with a lot of the arguments against this.
1.
The console would be too expensive.
This article from 2020 does a nice job of summarizing how much a comparable PC would have cost at that time. To no surprise, building a PC equivalent to a console is more expensive.
But wait! Console manufacturers sell consoles at a loss. Well, sure, Xbox has sold consoles at a $100 -$200 loss, from what we know of this generation. Sony didn't really sell the disc-variant PS5 at a loss (at least for very long), and only taking an unknown but presumably small loss on the digital variant.
However, in a hybrid-PC scenario, let's assume MS wants to break even. Alright, they're still capable of delivering a $700 console that performs like a PC that would cost you $1400 to build yourself. They sell millions of units, so they can strike deals with manufactuers, have custom parts developed, etc, etc, on a scale few can.
2.
You're alienating console gamers.
Console gamers have various reasons why they like consoles. Ease-of-use, convenience, ecosystem, etc. A hybrid-PC Xbox can still deliver on all those fronts. A custom console-like UI is a huge component in maintaining that experience. Having games "optimized" for Xbox, therefore eliminating the need to play with settings, is another. Ensuring backwards compatibility with previous gens is incredibly important, but it's something Xbox has already called out as a priority for their next-gen offering.
I'm not sure where console gamers are being alienated when they can have nearly everything they already have today, with the added benefit of tapping into the PC ecosystem to play games they've never been able to play before.
3.
Microsoft wouldn't make any money.
Xbox is now a major publisher. The more people they can get playing their games, the better. They still make money selling their games, even if it's not from their storefront.
However, there are still many that are invested in the Xbox ecosystem (people who currently own Xbox consoles) and, just like those of you who wouldn't dream of using a different storefront other than Steam, many of those console gamers would continue to purchase their games on Xbox's storefront. Only now they can purchase a whole other assortment of PC titles they've never had access to. It's on Microsoft to make their storefront as appealing as possible to keep gamers there while attracting new customers.
And then, my friends, Game Pass still does exist. Yes, indications show stagnation, but it's clear Xbox is looking for solutions for growth. But it is still, to our knowledge, a profitable endeavour, and commiting to CoD day 1 shows there is still a will to grow it further.
Lastly, there is no saying what partnerships may be formed between existing storefronts and Xbox. I would imagine Steam or EGS would not be interested in something like Apple's approach to supporting other App Stores, and Microsoft would be very hypocritical to attempt anything similar, but that's not to say something more palletable couldn't be arranged.
4.
PC gamers won't be interested in such a product.
I don't necessarily disagree completely, I think this product would still primarily be aimed at the console market. But there are plenty of folks out there that can't afford a $1500+ gaming PC. Offering a console that offers a huge bang for your buck, which Xbox can still very much so do with a hybrid-PC console without selling at a loss, is a compelling argument.
To summarize, while I understand where many of these arguments are coming from, I don't think making a hybrid-PC console with mass appeal is an insurmountable feat. It will be on Xbox to deliver on all these fronts, but I think there are clear paths on how to do so, and I think it alligns well with their overall strategy. It's a huge risk, of course, but I think that's just the place where Xbox is at right now. They need to be creative and try something different.
