I think Nintendo need to make sure they bring their next gen console to market before Microsoft, especially if Kinect continues to be successful over the next year or two. Nintendo need to do their best to have third parties on board from the beginning with their next machine, and to do enough to make a big splash with hardware and software that's different to what's been done so far. I still think Nintendo's next machine is coming Q4 2012, but Microsoft might be tempted to launch earlier or around the same time. Kinect's possible long term success leaves Microsoft with two options as far as I can see-leave Kinect on the market to extend the 360's lifespan by several more years and wait until late 2013 or 2014 to launch a new machine, or let Kinect have a successful couple of years and launch a new machine before Nintendo targeting the casual audience Nintendo successfully tapped into.
Looking at Microsoft's early strategy with 360, essentially they did what they could to overtake Sony (the market leader) by giving themselves a good head start, and I see no reason why they won't do what they can by launching early to overtake Nintendo. The question is, can they do what Nintendo did with the Wii and and bring new types of software and hardware to market? Kinect shows they can bring great forms of technology to market, but the software is very Wii-too so far. Equally Nintendo may struggle to bring a new home console to market that creates the kind of excitement Wii and Kinect have done.
In the short term I see a price cut for Wii in early summer, a peripheral based Wii series game (Wii Relax with the vitality sensor or something else) and a more steady stream of big software coming from Nintendo this year. If Kinect's boost carries on in monthly sales, Wii will struggle outside the festive season, and with Kinect proving to be such a festive success, Nintendo can't bet on dominating next year's end of year sales in order to make up most of their sales. They don't need to do much more with the Wii, it has far surpassed their expectations and its taken their rivals almost four years to launch their own motion control hardware and casual software, but I do think Nintendo need to do something short term to stop sales from dropping off. A price cut is only a temporary boost, but having that boost during the quiet summer months will help build up momentum towards the end of year sales bonanza.