Interesting points, but I'm still not on board with you. The console's biggest strength for Devs is the set HW specs. They know exactly what everyone has and doesn't have to worry about supporting odd configurations. Most consumers don't really care about how many frames per second the game is pushing as long as it works and is fun. How do I know that? If they did consoles wouldn't sell anywhere near as well as they do. Having an upgradeable console, while on one hand sounds interesting is a support nightmare. You'd be back to people trying to figure out if their console could run the game, and most non-tech people don't want that.
The fighting to keep prices down thing I have a hard time getting in line with.. yeah Steam sales are awesome, but it's not like console sales are unheard of. You go to any retailer and you'll see them on sale, or price dropped as the sell through drops down. Even the digital sides on both major platforms have sales. MS just finished it's summer sale last month. Hell, both platforms are giving away games to it's subscribers (before it's asked.. yes Xbox is doing it for Live subscribers
http://www.xbox.com/en-US/live/games-with-gold ).
My point is, while I find the idea of a upgradeable console interesting, I don't think most non-tech people will. Can you imagine explaining to some guy that he needs to keep throwing money into his console vs the competitors? Yeah the game might look a bit better, but it'll still most likely play the same and in the end that's all that guy will care about..