The appeal is plug in and play. Like a console. This is one reason why console gaming is still just as popular, if not more, that PC Gaming. There is no hassle. You buy it, you open the box, you plug it in and it works. It's simple, for people who are computer illiterate.
Also, yes, you can put any old PC next to your TV and work, but that can look ugly. A small little console like box that you can place on the shelf with your DVD player(that you wouldn't need anymore with one of these I think). It wouldn't look out of place in a home theater set-up like a fill or mid tower would.
You are also paying for the customer service. If it stops working, you make one call, just like a console. If it breaks, you know where to get it fixed at.
Another concern I see posted here is updatability. Sure, it probably is not upgradeable. Neither is a console. That's the whole point, to make a PC that functions like a console.
As I said in my previous post, it is likely not something I would ever buy for myself. I am tech savvy enough to put together my own PC and troubleshoot my own problems. If it goes above me, I know I can come here and get advice or take it to my local PC shop that treats me pretty fairly and isn't too overpriced. That's just me, and likely most of the posters here though, not your average computer users. My girlfriends sister is a perfect example. She lives with her mom who has a 3 year old cheap Dell PC. It was bought as cheap as possible to just browse the internet and check e-mail. She did not understand why it could not play Diablo 3. "It's a PC Game and I have a PC, why won't it work? If I buy a game for the Wii it works, why is my PC different?"