They're not going to scuttle it anytime soon. Microsoft is committed to supporting people that have bought it, so Series S software support has to continue for a respectable amount of time. And because of that, they may as well continue to manufacture and sell the system.
At worst if it's just not selling well enough to justify maintaining a production line and retail partners don't want to stock it, they'll discontinue production. But their hands are tied for software support and they can't pull that plug anytime soon. People bought the Series S based on promises and MS isn't going to risk tons of bad publicity, disgruntled customers, and probably some class action lawsuits by cancelling support a few months after launch and leaving Series S owners as orphans. Whether or not developers like it, mandatory Series S support is going to be sticking around at least into the mid 2020's.
Considering the similarity that consoles have with PC hardware these days and how scaleable PC games have to be in order to run on a wide variety of systems with drastically varying degrees of horsepower, it's hard to imagine MS having two levels of power here is too much of a hindrance for developers. Heck, even console specific developers should be getting used to different tiers of power by now thanks to the Xbox One X and Playstation 4 Pro.