I would expect it to be a loss leader. The cheap price combined with brand recognition, advertising, and a streamlined experience could make it a successful product I think.
Even the ROG Ally comes with a free month of GamePass Ultimate, and a new Xbox comes with 90 days. I don't see why a MS first party handheld wouldn't come with some.
Their competition is the Deck and other handhelds that run full versions of Windows, there's no reason to believe they wouldn't give it the same kind of capacities (i.e. a real handheld PC) in which case it's the Deck that will feel like a walled garden considering that not all games are compatible and not all launchers work on it.
I say that as a Deck owner that plays with it pretty much once a day.
I've heard from some others that there was a version of Windows (I'm blanking on which one) that worked great on tiny computers, so if they were to revive the project, it could be a really viable competitor.
The other handhelds that run Windows suffer from it being too much of a traditional PC first and not having enough "console" in them, from what I hear. Can't say from first hand experience, though, since I also own a Deck.
Either way, time will tell what eventually comes out of that brief sentiment.
I also mentioned in another comment that they could simply do the same thing as with the Deck, have it start with a handheld/controller friendly UI (hmmm where could Microsoft's Xbox division find that?) and give the option to switch to regular old Windows to do desktop stuff. It's not as if playing on the desktop without a mouse and keyboard attached to the Deck is a fun experience either!