"Some of the most interesting and deadly aspects of the enemies were bugs caused by improperly terminated boundary conditions in the algorithms. Often these bugs produced behavior far more interesting and psychotic then anything I conceived of."
-Eugene Jarvis on Robotron 2084
There were systems that embraced both models. Remember the Amiga? When using it for work it'd run off of hard drive and would multitask between productivity apps. Some games though required the isolated boot model.
Personally I always found the isolated boot model to be kind of a pain (and even now I prefer VMs over native boots for running non-native software), but I can see why some like it.