The irony of course is that the *closer* MS/Sony are to each other (and the more they fight it out), the more this benefits Nintendo (in various ways).
If Sony died (not going to happen), Nintendo I think would be more nervous about competing solely with MS than just with Sony.
Nintendo don't care *that* much about being #1 - in terms of hardware units sold anyway. They will almost certainly be #1 in terms of profit.
What they do care about is a flourishing, growing games industry - with solid business models, innovation, lots of profit and successful companies. If you asked Nintendo as to whether they would rather have the industry all to themselves - or have Sony/MS as competitors - Im sure they would say the latter.
I fully agree and as crazy as it sounds I think this is why Sony priced the PS3 so high. All the systems are not in direct competition and are avoiding a pricing war. Microsoft has Proved they can win that. Sony has to win customers based on merit and it is obvious they are working on something. MS has only to keep the titles flowing and make improvements on live. Nintendo has to remain easily accessable and continue to host entry games on their console. This isn't a battly of consoles more like a battle of fanbases (not for.. of).