I think it's bullshit and an awful idea because:
1) I highly doubt you can put in such a small box a Zen 2 and RDNA, SSD, motherboard, power supply and cooling system (heat sink + fan).
2) Even if capped o 4TF, its cost would be very high. The loss of selling it at $200 would be too high. They can afford some loss, but not that high.
3) MS devs already have to make sure their games run in a ton of SKUs: XBO, XBO S, XBO SAD, XBO X, Series X, many PCs and now on top of that another one?
4) This would hold back the entire generation of multi games and the 1st party Xbox games.
5) Regarding Microsoft pockets, they already spent a ton of money buying studios and brands, and giving away basically for free all their games, including many AAA. They should go financially suicide again with console pricing if they don't want to see the games division being shut down.
I still Lockhart/Series S never existed and won't exist. The only option that would make sense for a second MS SKU would be a Series X All Digital with mostly the same form factor than the other one: no extra work for devs, no extra marketing campaign, no constrained gen, etc.
1. We don't know the size of the Lockart system nor what it will look like. However, considering how small and quiet the X1X is, I have no doubt they can make the Lockhart system fit in a similar size box.
2. The cost would be high for the first year or so, but as the system is rumored to be all digital and the fact that they market Xbox GamePass as being an essential Xbox service, they may be willing to take the temporary loss (they can eat the 2 or so billion dollar loss and make it back easily with their services). They already have 10 million GP subscribers, and selling a cheap all-digital console that also provides a service that gives all Xbox games for a relatively low monthly price will be a surefire way to get more subs. Once those subs start paying full price they have a lot of extra revenue.
3. X1, X1S and X1SAD are all pretty much the same system other than a slightly boosted clockspeed on the S. The X1X is also very similar architecture wise and the fact that the games are being released on PC means the games will be inherently scalable in relation to graphics. Additionally, the Xbox first party studios will only be supporting the Xbox One family for the first year or so of Series X (basically finishing all games that started development on Xbox One) and again, since they have PC versions, it is not like the stress is that high anyway (the devkit Dante literally has modes for all Xbox systems and PC)
4. How would it hold back the "entire generation"? It will still have the same CPU, the same SSD, a similar amount of RAM and will support all the same GPU technology (RT, VRS, etc) the only main difference is that the GPU will be targeting a different resolution. Since graphics are inherently scalable (changing resolution, adjusting game settings, etc) as shown on PC, this will not affect game design in any meaningful way. It's just like on PC, if I want to game at 1080p, there is no reason for me to buy an RTX2080Ti, I would be much better off just getting an RTX2060 or 2070 if I wanted my build to last longer.
5. Unless you are a financial analyst or investor in Microsoft, I don't know why you are worried. I am absolutely certain that they are focusing on a long term plan (that they can absolutely afford) which is already beginning to work for them. They have 10 million Xbox Game Pass subscribers already, and they have not even gotten their consistent releases ready. It doesnt take much to see that their subs will rise as the Series X and Lockhart sell more (as Xbox markets it as essential for an Xbox owner) and for that plan to be effective they have to be willing to take a loss on hardware sales and to not see the fruits of their studio investments for a given period of time