But what's to suggest that a single series X SoC is somehow running two instances of a series S game? There is no evidence of that.
?? MS specifically mentioned that the boards were designed to run multiple instances of lower-power Xbox devices, they gave the example of each SX blade's APU running 4 X1S profiles. I imagine you have asked yourself "Self, why would they not mention Series S if the capability is there?" Well, during the only time period where they were speaking publicly about their SX blade's capabilities,
the Xbox Series S was not announced as a product yet. So, considering the fact that the SX blades are clearly virtualizing a Series S and were designed to handle multiple instances of lower-power Xboxes, I believe we do have circumstantial evidence supporting this.
I'll concede that MS has neither confirmed nor denied the SX blade’s ability to run multiple Series S instances per APU, but the substantial GPU power and ample RAM on each SX blade's APU (3x gpu and 2.4x ram of a SS) suggest that such capability exists. When you ask "Where are people getting this idea from? Again there is no confirmation that it virtualizes 2 Series S systems", I would point out that it seems both possible and plausible. To those who would state that they believe each SX blade APU runs only a single Series S profile, I would ask why would you think so? It seems like it would be a tremendous waste. Just my take anyways.
edit: I want to be clear, I don't believe each APU is virtualizing 4 SS instances, that was misspeak on my part. 2 SS profiles seem to fit the SX blade APU.