If I understand your question, it is not mutually exclusive, and there are physical devices that can run Pico-8, for instance, GameShell and RaspiBoy.

Certainly, you can build your custom device. Still, it is sort of derailing the original intention if you are making a game or participating in the demoscene and would like to focus on the development (or learning) aspect rather than porting and hardware.

Game development is already hard. It could be a nice cherry on top to run it on the physical device; however, emulators are great to get started.

Just a guess: it is a lot easier to focus upon making a game using a fantasy console than it is to use hardware. Using something like a Pi Pico means building out the hardware or buying into a non-standard board that provides suitable I/O capabilities. From my meager experience with fantasy consoles, they also provide a development environment that is more similar to an 80's vintage computer than you would get with a microcontroller. (While it is easy to setup a development environment on a Pi Pico if you follow the instructions, it is rather involved.)

That's not to say it can't be done. I have seen demos using everything from custom code and circuits using an ATtiny to people using VGA libraries on higher performance microcontrollers, but that's not everyone's cup of tea and would likely be hard to implement around a game jam.

Such fantasy consoles more often that not have a complete programming setup built-in and are mostly free from programming gotchas that can be present on old hardware. They are also much simpler to learn and use than modern platforms, and offer limits that can force you to come up with interesting ideas.

Beyond that, I suppose it is also a some way to prototype. Celeste[0] was originally created as a PICO-8 game.

[0]: http://www.celestegame.com [1]: https://www.lexaloffle.com/bbs/?tid=2145

I was wondering about this too. Then I realized that the interpreted nature and user friendliness doesn't map to a low power mcu.

You either settle on a hardware that's basically an embedded linux that's way overpowered and runs hot/drains battery OR you let go of the ease of use and get dirty with embedded development tools. If you look up some GBA homebrew you can quickly see why this will remain unpopular.

The third and most ridiculous option would be fabbing a custom low power SoC that has an embedded gpu specifically designed around the pico8 limitations and some extra opcodes that accelerate luaJIT.