According to The Verge, Valve is working with hardware partners to develop and release a home console called the "Steam Box."
Valve CEO Gabe Newell has said recently that "if we [Valve] have to sell hardware we will."
But the Steam Box is not going to be yet another locked down proprietary console. At its heart, the Steam Box will consist of a Core i7 CPU, 8GB RAM, an Nvidia graphics card and Steam client installed on Windows operating system. The system will be usable on computer monitors as well as TV screens thanks to Steam's soon-to-be-released Big-Picture mode.
Interestingly, the Steam Box will be able to run all PC games, including ones that are sold through or depend on competing services such as Direct2Drive or EA Origin. The "console" will ship with a proprietary controller that features swappable components (mockup available in the screens tab).
To make the system even more open, Valve will allow all interested hardware manufacturers to produce it without paying any licensing fees. Game developers won't need to buy any new development kits to develop games for the Steam Box.
The Steam Box can be thought of as an attempt to standardize and unify a set of PC hardware specs so that game developers would be able to target. In other words, any PC that matches or exceeds Steam Box's hardware specs will be able to play Steam Box games simply by plugging in a suitable controller through the USB port.