An upgradable machine would allow proficient users to simply improve their current system rather than buying "this year's new device." It would be nice to have both options available. You still don't have to support older hardware, and savvy users don't have to pay extra for a whole new system.
Meanwhile, if you can't afford either upgrade, it should still be possible to play most games, albeit at a reduced framerate. The same could never be said for a traditional console.
An upgradable machine also allows a "power" user to upgrade their machine way beyond the original specs in order to give them an unfair advantage in online gaming. I picture someone with a monster 24 CPU/256GB RAM box playing TF2 at 200fps pummeling me ever harder than they do today. :(
However, I like the idea of a Valve console. They've done so much right in the world of gaming that I'd like to see how else they can shake it up. :)
Meanwhile, if you can't afford either upgrade, it should still be possible to play most games, albeit at a reduced framerate. The same could never be said for a traditional console.