What makes Nintendo who they are is the fact that they make their own hardware and software. Whoring their games out de-souls them greatly and would only serve to degrade their brand imo.

As far as Sony goes, I am confident that it's only a matter of time before PS Now is on PC as a stand alone service. I really see the service as their "get out of the console umbrella" agenda. I could be wrong, but that's my gut feeling.

Thats a possibility, and they could even do it right now without affecting the PS4 sales, afterall as far as im aware PSNow only offers PS3 (and maybe older gen) games, as long as it isnt offering the PS4 exclusives it shouldnt affect the sales of the PS4.

psnow is dabbling in cloud for older games, not current games. That's probably because they have no backwards compatibility and are using it to remedy that issue. As far as hardware development Sony was brought into the industry because they develop formats for electronics. They develop hardware by nature. Nintendo knows this to be true. They are the only two hardware faithful platforms. 

Maybe slightly higher texture quality + AA levels.

Dont think it would effect much more than that.

I get why you make this objection and I agree, Ninty will want control on its platform (and royalties from third parties) even if it stops directly producing HW. But why reinventing the wheel? A third solution giving the advantages of a proprietary OS and the savings of an existing one could be making a proprietary operating environment running on Linux. This way they'd solve the problem of controlling the platform, but they shouldn't worry about drivers for a range of HW components and peripheral a lot larger than the single or very few fixed HW configs a console can have through its life, and they'd find a wide range of non-gaming apps, utilities and services ready for the Ninty machines without having to pay a cent (unless they want to integrate them better with their environment, this would require some coding and testying, but it would still be easier and less expensive than developing them from scratch).
Apart from selling (or giving it away for free and just collecting royalties from third parties and selling their first party games) the environment through all the available and suitable channels they could bundle it with recommended graphics cards and assembled PCs too.
Others tried similar business solutions in the past, but they couldn't count on Ninty first party games library and experience in the gaming market and in entertainment in a wider sense.

It would be a good thing for gamers but a bad thing for Nintendo. Nintendo's hardware is really dependent on it's 1st party games unlike MS.

Like the open world that they are developing and can't do before because the underpowered hardware they were working on?

Then people won't buy their hardware..

Nintendo should just become a third party developer, and learn from/avoid the mistakes Sega made.