This is what Valve's steam machine prototypes look like. Keep in mind these are just the Valve-made prototypes. Once testing has been done, other hardware manufacturers will take over the actual hardware production (minus the controller). This sounds eerily similar to the 3DO, but since its Valve I'm not as skeptical as I would be otherwise. The steam box runs SteamOS, which is based on Linux, as you may have heard. However SteamOS is not based on Ubuntu, which was honestly surprising to me, but instead is a custom distro made by Valve themselves. Keep in mind that this OS will be free and open source, but will also come with the ability to stream your games from a Windows PC in another room. This is the feature I'm most excited about, since it means I'll be able to have my gaming rig PC in my room, and a lower power steambox (possibly of my own creation) in the living room.
Source and further reading on The Verge. I encourage you to read their article, as they have much more information and even development info.
EDIT: IGN has an article that goes more into depth about the controller. It's pretty interesting to read.