Let me clarify a few things. I was just using Linux lingo, because that's how my brain operates. I don't think the Xbox OS will be Linux-based in any way. I was just using Steam OS as an example of what I think it would look like. Xbox storefront on startup, with a basic Windows desktop backend buried behind a button.
Concerning the free distro, why wouldn't MS want PC gamers to have a bloat-free option that just so happens to put their software store front-and-center? Especially since it looks like Valve is going full steam (no pun intended) ahead with an open Steam OS beta this year.
I see now, that's how my brain operates too lmao. And I agree, they're most definitely working on a "xboxOS" at the moment, if not for grander plans, it'll at least be for the windows handhelds as I mentioned.
If this xboxOS is tied specific hardware and won't be available as an ISO to anyone to install for free, then I can definitely see it happening. The reason I can't see how they'll provide that for free for everyone is that I think it's shooting themselves on the foot, and they'd undermine their own OS if they provide a version that's without the bloat, which is what basiaclly everyone who's cursed to use windows 11 would want, and for free no less. Unless they lock this gaming centric version down in a way that makes using it as a regular Windows a shitty experience, so you'd have to choose more carefully between the two if both serve different purposes. But then again, the idea is that it'd be open so I'd imagine it'd be easy to mod it into working like a regular desktop besides the gaming frontends, like SteamOS. So I'm not really sure how they'd balance making this free for everyone while also not making regular windows absolutely worthless for the millions of users who play games.
On the hardware subsidization front, my reasoning is that it's exactly what they do with their Surface line. Surface laptops are rather expensive for what they are, but that's intentional so they maintain a good relationship with their OEM partners. That being said the Surface products are very high quality, so if some other manufacturer shits the bed Microsoft has a baseline example to prove that the problem isn't on them.
I understand you better now, so it'd be that Microsoft will have their own super expensive not-an-xbox pc box thingy, and it'd partner up with vendors so they'd make their own kind of that device, with varying prices. This is better than what I intitially got from the previous comment, yet I still don't see Microsoft being smart enough to go through with this radically different and long-term business plan. Like I think this is something only the likes of Valve would do, minus making an expensive device that no one would buy when there are cheaper alternatives. I only see Valve going this route of creating and expanding the market, and not necessarily overly-controlling it, since they have the advantage in the already sought-after Steam store. I don't see Microsoft doing any of that, they're not that type of company who'd do such an open and customer-focused strategy, the extent of what I imagine they'd do to achieve these two points would be bringing gamepass to every sort of device, and that's it.
On the 30% licensing fee I never said that it was irrelevant, hell it's Valve's entire business model. I just said that it wasn't without cost. I see a lot of podcasters & such talk about the 30% like it gets added straight to the bottom line as if it's pure profit. My point is that MS will make a shit-load more profit selling at 70% to the entire core gaming market with however much more at 100% they capture on their own storefronts. Add into that the recurring revenue stream that is Gamepass on anything running Xbox OS, or Windows, and MS will be more profitable than they ever have been in the gaming market.
Never said you said it was irrelevant either

But here's the thing, Microsoft already sells a shitload of their stuff on other storefronts with the %70 cut as it is, so why would they go out of their way, create an entirely new platform which will cost god knows how much money to develop and maintain, and all that OEM partnering crap, just to maintain the status quo of being third party publishers in their own platform(s)?
Wouldn't it make much more sense if they were to go through with this xboxOS, exclusively so they would expect everyone to buy from the xboxOS store, where they'd take %30 of every single item sold on their new and shiny devices (third party or otherwise)? Isn't this much more appealing for them than creating a whole new sector, then only profiting off: 1- the expensive Surface-like device that I doubt will sell. 2- when people make xbox games (where they'd only get %70). 3- gamepass, which would already exist in any device anyways, xboxOS or otherwise.
On that last point about MS not allowing other storefronts on their hardware, the next 'Xbox' is going to be a low-end gaming PC with an open platform, not a console. A console being a low-end gaming PC with a closed platform. Multiple insiders have gone on record about multiple storefronts on the next Xbox, as has Spencer himself on multiple occasions.
I can definitely see it happening, but I'd expect it to be so that -for example- it's not as intuitive to play your games on Steam as it is to play off the xbox store. Or at least that Gamepass and co will be heavily pushed like Windows pushes OneDrive or whatever they do these days, so they can actually make money off your ass.
Edit - I just want to say that none of these companies give two wet shits what 40+ year old man-children think on forums or Twitter (not you, just in the general sense of fanboys), they care about profit above all else. These people aren't our friends, and they aren't making all these delightful works of art as a charity for the purpose of enriching our lives. We're all nothing more than a wallet full of cash that they want, while offering something cheaper to produce in exchange.
Of course, and even though I know you're saying this with no ill-intentions like you said, I don't know why you're pointing it out such an obvious thing in the first place, lol.
I know none of them will make a good product unless and only if it makes them a shitload of money, that's why I'm arguing Microsoft will go the less exciting and customer-reasonable route I mentioned, instead of (badly) copying what essentially Valve is doing at the moment.
And I guess I'll also do my own piece and "say it", since I don't trust my own tone to make it clear: I'm actually interested in what microsoft would do post-consoles, and I'm not arguing for the sake of it here, so I'm not trying to prove my points or win debates or whatever.
Also you fucked up on the age number, I'm barely half of that, so you're on your own with that one

.