While its possible that its for some yet unreleased Steam based console, the controller Valve patented is much more likely to be for their recently previewed Steam big picture mode that can turn any computer into a "steam box" that you can plug in your television. It's quite likely this same big picture mode would be used on their console, assuming one ever exists.
In addition Valve have been playing around with biometrics a lot for their internal playtesting, and have expressed interest in bringing that to the living room (for example, the "director" in Left4Dead is supposed to adjust the difficulty of the game dynamically to keep you on your toes - data on your current emotional state and stress levels would be a valuable input for that).
Gabe definitely mentioned at one point that there was a possibility of putting some basic biometric hardware into a controller, and they've also spoken about experimenting with new forms of input before (and have supported 3rd party novel input devices such as the Novint Falcon).
It's very clear they want to experiment in the controller space, and they have stated multiple times that they do not want to be in the console business, and would rather provide the software for other companies to build their own "Steam Boxes" - yet for some reason everyone fixates on the baseless rumour that they will be making a console, rather than the play that's right in front of them.
They may not do the manufacturing themselves, but it's clear that they see a future market for some form of Linux based games system for which they will be the main supplier of software.
It's either that or they are predicting a sharp upsurge in Linux usage after Windows 8 which seems like a very scary predication to make.
Gabe Newell has been publically denigrating Windows 8, but I think his real fear, and this idea would support the move to Linux, is the way Windows is moving towards a closed app store model, which brings it into direct competition with Steam.
Yes, I assume the idea is to integrate the Steambox and Ubuntu desktops together in the same way that Windows and Xbox go together although I would be surprised if they actually ditch Windows.
Assuming such a steambox does exist, what remains to be seen is whether they make it easy to turn it into a proper Linux PC.
That would effectively stealth install Linux desktops in millions of homes worldwide.
