That's not quite true. The NES being more powerful than the SG-1000 was an important factor in its success. It was the most advanced console on the market at launch and had two years to build its position before Sega was able to counter.
Hardware progression has always been an important part of the industry and Nintendo has been a part of that. Power, to a certain extent, drives gameplay. It certainly doesn't hurt games to have more power.
The real question is, how close does Nintendo need to be to Sony and Microsoft? Should they be on par? If they were on par, would that mean third-party support? If they're further behind, does that give them an opportunity to make money as a budget option?
The only thing I will say for sure is that Nintendo has to go one way or the other. Getting caught in the middle ground where they're not quite powerful enough but also not quite cheap enough is probably a recipe for failure.
True, but NES's competitor was the 8 bit Master System. S-G1000 wasn't NES's competitor.
Hardware progression is important, nobody is saying that it isn't. What gamers are saying on this thread is you don't have to have insanely photo realistic games that will easily become dated in a few years. You can make a stylistic game that looks good and is fun. Which is what Nintendo's philosophy has been for years. Reggie, Iwata...they say Nintendo isn't about graphics. But that by no means, says that they want to make ugly games. I've yet to see a Nintendo game that doesn't look at least passable. It doesn't hurt but it's not Nintendo's priority either.
Nintendo doesn't need to compete with Sony or Microsoft and they've made that known. Wii didn't compete with PS360, PS360 competed with Wii. Reggie said PS and XB can fight it out in that red ocean but Nintendo does its own thing and that's what makes them so great in my opinion. Even if Nintendo was on par, 3rd party games wouldn't sell as well on Nintendo platforms due to the fanbase of Nintendo and casuals. For Example, Call of Duty Ghosts released all in the same time frame on PS3, PS4, Xbox One, 360, Wii U, and PC.
In terms of power, PS360 are on the same level as Wii U right? All are Power PC based, Wii U even has a few hardware advantages. And yet, Cod Ghosts was the worst selling version across all the platforms listed above. Power isn't on my mind or many of Nintendo fan's minds. We just want good games that aren't too far behind in terms of graphical fidelity.
I think Nintendo realizes that they have to be powerful enough and cheap enough. Creating and selling a console on par with PS4 and Xbone is quite cheap now. With Wii U, it could have cost easily, $250 without that darned gamepad. So I think they learned their lesson on cost. No need for a 180$ controller that barely gets used for anything engaging. Nintendo hardware won't be sold above $300 again. Wii U was the first one to do so and once again, the Gamepad is to blame. NX will be powerful enough and Kimishima is certain that it won't be sold at a loss.
Ultimately, I don't want Nintendo to compete against Sony or Microsoft because the demographics for those hard core gamers are much different. Still, I am a Nintendo fan and I dabbled in all of their hardware to get games that aren't available on a certain console. For example I got a 360 for Blue Dragon, Lost Odyssey, and Tales of Vesperia. There are people like me who support any console that has appealing software. But there are also those who prefer a certain gaming style that will support a console and that console only. I have friends like that who won't look in Nintendo's direction and that's fine. I don't think Nintendo needs to sop up to everyone's desires to be a success. They need to do them because nobody is going to drop Playstation or Xbox just because Nintendo is powerful enough. It'll take much more than power.