I'm curious if they will allow steam on this or not.
Its not an impossibility, but its really about 'what are the goals of this thing'. If you're Microsoft, the main reason you have on creating such a handheld would be to give users remote/handheld access to the Xbox ecosystem, but the Xbox ecosystem has 2 fronts - PC and console. The PC front is the Xbox/Microsoft Gaming store on Desktop windows, and the console front is the Xbox hardware itself. Steam is a 3rd, separate ecosystem. What muddies this is that Steam, although with more team the two will increasingly diverge, but Steam relies on Windows for the lionshare of its userbase. As mentioned, that is changing with the growth and maturation of SteamOS, and how SteamOS and the Steam eco is being further offered through new entry points, Steam Decks and other PC handhelds chief among them.
What makes this difficult is that, if MS were to make a handheld, the OS on it either has to dual-boot the Xbox console OS to allow you access to the Xbox eco, and give you a wrapper for Desktop Windows OS, which allows you to easily install Steam, and thus gives you access to the Steam library. This is how Asus Rog Ally currently allows you to install Steam via a version of Windows OS that gets installed on the machine. To every license holder on Earth, the Steam version of a title, the Windows Store version of a title (the one used for PC Game Pass titles), and the Xbox version of a title are 3 separate SKUs.
Say Microsoft were to offer you a handheld device that is a version of Desktop Windows, allowing you to install team, and it perfectly runs win32 executables, which would allow you to run your entire Steam library and access the Steam store, while *also* allowing you to access your entire Xbox library and let you run them natively on said device. In order for that last part, the native running, you would need some sort of emulation layer, which again - not impossible to do, especially if you're Microsoft. The emulation solutions they've come up with that enables Backwards Compatibility are solid. The problem becomes navigate the legal complications such a product would inevitably create. And considering that, even with such a product they'll likely be competing unfavorably against the Steam Deck line itself, why would Steam or other license holders caught in the middle of this not want to get paid?