There's so much stupidity in the OP, really I had to say it.
The most obvious is who is competing with who.
The OP HIMSELF says that the PS3/XB360 multiplatform games are ported (downgraded) to the PS2. Which means that people that have a PS2 and don't want to buy a PS3/XB360 can do just that : buy the PS2 port. Which is just another way to say that the PS3/XB360 are competing with the PS2, which is last gen. So actually, the HD consoles are competing with last gen PS2 too.
And yes, the Wii is competing with PS3 and XB360 for the simple fact that they take shelf space from these two, right now. The OP seems to have s very strong cognitive dissonance, so he may not see the shelves (or lose quickly memory of them), or only order by Internet to not see them.
"So how will you beat a console that is still selling over 5 years in its lifespan?"
That's a question for Nintendo and the answer is simple : by selling faster and for as long or longer. Wii is a monster that is destroying evey gen.
Hell, the paradigm shift has started, and if the disruption succeeds, that's every every generation since the NES that Nintendo is competing against. And for now, they're winning.
