TBH i see them going to Microsoft simple because of the history between Sony and Nintendo. They would be happy to see Sony fail.

Wii U is an interesting thing, because whether it succeeds or fails or does anything in-between, it's positioned to help Nintendo transition into being "handheld only," for a hybrid system that can have limited set-top-box functions to allow it to run like a console when you want it to do so. If the Wii U succeeds, it leads to that point because the gamepad forges the way. If it fails, then that's the route to take because it blends Nintendo's stronger handheld brand with rising mobile tech to deliver a console-esque experience.

They're not going to work with either of the rivals, however. Nintendo's philosophy is all about control over their hardware to deliver optimum gaming experiences, and the shifting technology plays into their hands. If they work with anyone, it's going to be a non-gaming company that's not going to care about the hardware, most likely Google in that scenario. An android build could run handily without Nintendo having to compromise their creative control over hardware design, and then they build something like the gamepad all over again, but one that runs entirely endogenously, and can connect back to a set-top box. Nintendo can do this entirely on their own and simply surrender the increasingly PC-esque (the x86 designs of the latest Microsoft and Sony offerings should be the big hint) home console market, while simultaneously moving into a new market beyond traditional handheld/console offerings.

Its already attacking old people

If they had a signed contract/agreement that Microsoft couldn't attempt a buyout/take over, I think Nintendo would bite on that too. Both are in Redmond Washington (well NOA is anyway), so it would be convienant. 

Though Nintendo's Japanese board may prefer working with Japanese business suits like Sony. Yoshida and Kaz seem perfectly reasonable, I'm sure they would roll out the red carpet for Iwata and co. 

Even if they quite the console market they could still fall back on the handheld market thus keeping all their IPs. Not that Nintendo is going anywhere anytime soon.

Cede control?  Not hardly.  If Nintendo stopped making consoles, they'd just be another developer/publisher looking for a place to sell their games.  Without a Nintendo console to compete against, both Sony and Microsoft would automatically get a boost.  They would be in a good place.  Neither one would need to "cede control" of anything.  Microsoft, especially, would never do that.

As for Nintendo, they're not stupid.  Maximizing profit would mean being on as many platforms as possible.  The one property Sony might go after hard would be Pokemon, though I suspect Nintendo would take it to iOS.

The alternate future you're painting might sound wonderful for Nintendo fans but it makes very little sense.  The most likely scenario is that Nintendo games appear on both Xbox and Playstation brands.

Or MS and Sony band together and back Nintendo into a corner so they're forced to support both.

Really though, this won't happen.

Didn't Nintendo say their franchises will never be on other consoles, and that they'd rather it died with them?

No, Nintendo is not like any other publisher. They could pick one of Sony/MS and tip the console scale entirely. 

As such they have tremendous leverage to do as they please. And Sony/MS would have to help Nintendo's handheld business to boot. If I'm Iwata I'm laughing at any deal that doesn't help my handheld business. 

Or they could just go take that meeting with Apple or Google and watch both Sony and especially MS sh*t their pants. I would give it a good 15 seconds from when Nintendo says "we'll go talk with Apple" to MS calling back and saying "No no no no, lets not do that, lets talk, ok?".  

They'd both cave IMO, and from that point on Nintendo could just sit back and watch them both jump through hoops trying to offer the best overall partnership offer. 

If you think Nintendo is run by idiots, then there is nothing I can do about that.  They wouldn't "pick one" for the same reason Ubisoft, Activision, or EA hasn't; the money is in multi-plats.

Besides, the whole premise makes no sense.  Why would a Nintendo with as much power as you're giving them leave the console business in the first place?  Let's suppose that the Wii U ends as a flop and the next Nintendo console ends as a flop, thus forcing Nintendo to abandon that market.  You think they'd still have the same leverage as when the Wii was at the top?  Not by a long shot.

No one is going to give their company away to win Nintendo.  No one is going to offer Nintendo the kind of money they would get from multiple platforms just to be exclusive.  It's not going to happen.

Nintendo isn't in the same position as any third party for the simple reason that they already have their own platform they can sell their own games on (the 3DS and it's inevitable successor). So their outlet for selling games doesn't go anywhere. 

Sega did not have that fall back, once their console biz collapsed, they had no where else to sell their games. 

To be honest too, I think in the long run perhaps Sega should have taken an exclusivity deal with Microsoft, one laden with a ton of cash in kick backs and royalties + gaurunteed marketing. 

Look at Sega today -- they're a joke of a company with all their good staff gone ... don't think Nintendo hasn't studied that, that's why they would never go that route. You have to look after your company and use your leverage to secure the best possible situation. 

Short term thinking like "lets just throw all our gamez on every system and become like every other company" is something Nintendo will never do. 

The reason Nintendo has such power is because their franchises still command a lot of power in the industry, especially if they were backed by a platform that had third party support. The other reason why is there's very little in practical difference between Sony/MS. Nintendo picking one over the other would change the entire industry, as such they have "king maker" ability. So there's that.