Physical's much better for single-player games if your family has more than one Switch, due to how Nintendo's family sharing for digital games works, which is that the account that buys the game can play it on any Switch, but others can only play it on that account's designated primary switch. And, I can't recall for sure, but I think you may only be able to play one game connected to that account anywhere at a given time.
For multi-device multiplayer, you need multiple copies anyway, so might as well go digital.
Admittedly, this may be a niche concern, but OTOH I don't think Nintendo wants it to be a niche concern, since they're pushing the Switch as both a TV-connected console and a Gameboy replacement.
There's also the matter that you can recover a fair bit of the value of a cartridge by selling it, while you can't do that with digital games, and you can buy physical copies used. Between those, digital is effectively quite a bit more expensive, since they sell them at the same price as physical.
We have one "legal" switch, then other .. less than stock switches. We buy the games on the legal one. What happens after that is between me and my other switches.
Nintendo is better at couch co-op or split screen games. Anything Mario (e.g. Kart), the common casual games (Overcooked), etc. And these games are easier to setup in split-screen mode. The Deck is awesome but 4 Bluetooth controllers is super painful (which one needs re-pairing? who's on controller #1?).
The Deck's wider capabilities (emulators, Minecraft) are also harder to setup and use for kids. The Switch is way more limited but little kids perhaps deal better with a flat "no" than a "maybe, you'll need to work for it".
I think GP's point holds. I'm loving my Deck but my kids are more drawn to their Switch, the Deck intimidates them.
While that might be part of it, I think a huge amount is just brand awareness. Nintendo is known for handheld gaming and has been known for it for 4-5 decades. The steam deck is pretty neat but steam is a computer gamer brand and they just dont have the recognition of nintendo.
Steam's family sharing is definitely not as convenient. Especially because their system doesn't so much share games but entire libraries: only one person can use a library at a time. I could be playing a free game like Dota 2 and my entire library will be locked out of my family share. This makes it impossible to actually build a big library that you can share with multiple friends compared to a physical game collection.
Name any other gaming platform where you can legally and conveniently share almost all available games with friends.