The way how this works in XBOX Series consoles is, that each game is containerized and isolated from the OS. I’m not entirely sure how this works in detail and always assumed its kind of like a hypervisor style container. Steam doesn’t do that. Steam has its own runtime and some isolation, but games and apps generally could do whatever they want on the system and they are not confined and completely isolated from the OS like a XBOX game is.

I actually wouldn’t mind if one day Steam runs each game (or its an option) in a virtual environment. That would bring compatibility and security to a whole new level.