And call it...
The Orange Box.
I was seriously thinking that as well, but it was too easy and convenient to suggest the idea
Besides, orange is a pretty tacky color for a production/retail item though. But it would be interesting to market an "Orange Box" console as coming with a pre-installed copy of The Orange Box, which would be a pretty good idea unto itself. Valve already banked with the title and giving away free digital copies would be tempting for consumers. Hell I'd throw in Counter-Strike Source too.
As interesting as the 4 Core Bobcat idea is, I see nothing but problems arising from the chip being too low in graphics horsepower and APU - RAM bandwidth not meeting the demand. If it was a 4 core Bobcat + dedicated GPU, I would be much more interested. As for the arguments about using Windows in such a machine (assuming it's still a generally open ended PC machine), I could see MS getting on board with providing a stripped down version of Windows, if MS really feels that their OS is in peril (and arguably it is with Apple, Linux on their ass). In the end I cannot seriously see a Valve Box running only Source powered games from Valve hence why I wouldn't want an APU-only system unless we're talking 4 CPU cores, 400+ SPs and 40+ GB/s of bandwidth. It needs to decently handle a large part of the Steam catalog as well as whatever Valve might be planning as a successor to Source. I'd still expect it to be a fully functional computer (regardless of OS structure), with the proper interfaces and programs for idiots to have their hand held but provision for power users to get their groove on if they so desire.
I'm also surprised Valve hasn't tried to break into the Facebook gaming market by providing browser playable forms of Counter Strike Source that can interface and play with "normal" servers. Facebook gamers could easily access the game by starting their browser, logging in to Facebook as opposed to doing the "complicated" bit of hitting an exe on their desktop
As for MS-Activision royalties thing, I guess it would be possible for MS to analyze Call of Duty related server activity and pay Activision according to the activity, assuming Activision even had access to the info to leverage MS into paying them?