For a console system, you need sprites, high-speed polygon placement, built-in shaders and deadline-based updates (it has to be damn smooth, if it's going to compete with the alternatives).
What you do not need are windows (beyond picture-in-picture), client-server overheads (consoles aren't likely to be connected to X terminals in a different room, city or country, unless you're using a VERY big monitor), memory overheads from components never used in this context, or support for multiple users with one or more displays each on a single console.
Now, I haven't inspected the code yet, so can't say how far they've gone. Nor do I know if anyone still works on KGI or GGI, although those would be far closer to console requirements than X.
(Hey, I love X, I actually have made a lot of use of redirecting screens several hundred miles for diagnostic purposes, I think there is a lot of life in the system yet, but vanilla X is totally wrong for consoles and even modded X won't give the experience console addicts crave.)
Besides, Valve isn't a desktop flavour. If you want a desktop flavour, one that wows desktop users (just as the desktop market starts dying horribly, it's anguished cry half-drowned in the blood and tabletness flowing forth like a monstrous, misshapen river) then you need to make one.