Competition is almost always a good thing, even if it's not great, though A's logic is sound and as they said, in this case it may be good and bad. Still, as much as I hate Intel, I actually considered the A770, and might have gone with it if it were cheaper, but at least when I was looking it wasn't enough of a savings over the 6700XT I went with, which has similar to better performance and is likely more stable with less of the growing pains issues.
But as rapid as Intel's progress has been with how hard their driver team is working, I don't find it unreasonable at all to see Battlemage being very competitive with AMD on price and performance and with Nvidia on price and possibly price/performance, and it seems likely it will require far less tinkering than Alchemist, which is the other reason I decided on AMD, as I didn't want to have to mess with it, I just wanted it to work (not to say AMD is perfect in that sense, but far better than Intel from what I've seen).
I suspect this isn't just about getting into the gaming dGPU market, or even about AI (though that's likely a big part of it), but also about improving their iGPUs to make their mobile chips more competitive. So even if they lost money on Alchemist, and even if they continue to do so on Battlemage, it may be worth it overall, especially in the long run, and the refusal by many companies to spend/lose money now to make more later is why they're now finding themselves struggling to begin with. Either way, even if they're selling them at a loss, that's certainly not "setting gamers up for disappointment." How would it be a disappointment to get a card with competitive performance at a competitive price just because Intel is losing money on it?
The main concern would be that it carves away sales from AMD and then Intel drops out, leaving a weakened AMD to continue against Nvidia. But with Nvidia increasingly ignoring low- and mid-range gamers and AMD ignoring the high-end, at least Intel is providing some competition to part of the market, where without them each level doesn't really have much.