Most users wouldn't bother going through the effort of switching the system OS (assuming that MS would launch a Windows/Xbox hybrid interface), as long as the price is right, even if it's targeted towards core users, and it can play the games that are popular, it will likely be fine IMO. Although here I'm assuming that Xbox just wants to still have a foot in the market, not commit the same mistake of the Windows Phone, even if it is a distant third place. However I'm also assuming that a potential Xbox Deck would drop fees for playing online, otherwise it really wouldn't have a chance to begin with.
I never liked the race the for high end graphics, so this is an all around win for me, and, IMO, would be a long-term win for the health of the industry, though I must admit that would cause a lot of short term pain, particularly to third party giants that relied on that market, specifically the ones with near decade long projects that have yet to be released.
Some PlayStation fans might not realize, but Xbox falling off the console market will become a huge problem for Sony too.