I honestly love this mentality. Like movies, your machine will play all of the games in your library. If they go in from the design stage as something built for forward compatibility, then getting "back-compat" would be automatic. Dynamic resolutions, unlocked framerate modes, and LOD and draw distances could go a long way to achieving automatic upgrades in graphics on new systems.
It's very focused on the consumer end value. I like that. I also think- with this talk of streaming- That they will build that capability as a feature into their consoles, but that it will be for streaming content from your box to your smaller devices. That should help with the hub-proximity issue. It would also free up server-side computing resources for those that do chose to engage in a streaming service.
I still don't think that tech would be feasible as a replacement for hardware at home, but it could work for those that can accept the degraded experience in order to have it on the go.