It's not a subset of a subset at all! It's console gamers with a decent internet connection who want a bit more from their games than what the consoles can currently offer. You're the one who's constantly banging on about how much poorer the consoles are than a PC in terms of performance - this offers a middleground. Taking your points one by one:
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The games didn't even run at 360/PS3 quality
Yeah, they do. Significantly, noticeably better.
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there was no cheap pre-owned
True. The same is true for the PSN and Live games one demand stuff too, of course.
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it didn't have any sort of established market
Well of course it didn't. That's how new things work. And why would the end user care?
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it hammered whatever internet connection it was used on and required pretty much exclusive access to said connection
So? The vast majority of the gaming market is young males. They're not exactly likely to have a house full of other people clamouring to use it.
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and it cost a bloody fortune compared to a second hand 360 and a load of second hand games.
Yes. But not even slightly compared to a new 360 and a load of new 360 games.