the problem only affect a subset of HDMI 2.1 features, not HDMI 2.0

but the steam machine isn't really super powerful (fast enough for a lot of games, faster then what a lot of steam customers have, sure. But still no that fast.)

So most of the HDMI 2.1 features it can't use aren't that relevant. Like sure you don't get >60fps@4K but you already need a good amount of FSR to get to 60fps@4k.

Just because the Steam Machine isn't powerful enough to support high framerates in modern AAA games doesn't mean it can't do so with older or less graphically-intensive games.

VRR and HDR are presumably the biggest issues, because HDMI 2.0 should already have enough bandwith to support 8-bit 2160p120 with 4:2:0 chroma subsampling, which should work fine for most SDR games, and 144 Hz vs 120 Hz is, in my experience at least, not noticeably different enough to be worth fussing over.

Some people will want to use their Steam Machine as a general-purpose desktop, of course, where RGB or 4:2:2 is nonnegotiable. Though in this case 120 Hz — or 120,000/1001 Hz, thanks NTSC — is, again in my experience, superior to 144 Hz as it avoids frame pacing issues with 30/60 Hz video.

Not supporting VRR is a pretty significant issue.