Yes. The odds are good that when this generation is over, the 2nd and 3rd place consoles will sell twice or more what the 2nd and 3rd place consoles sold last generation. The real question is whether Wii beats the PS2. If so, that would mean a substantial increase in the overall market - the rising tide will have lifted all boats. If not, then the comparative success of the 2nd and 3rd place titles will be to a leveling of the playing field resulting in greater parity among the systems (and, yes, option 3 - something in between). Whatever the case, these developments should encourage everyone to come back for another go 'round.
Look at it by developer:
Nintendo: Absolutely no reason to get out now. The GCN is now looking like a blip in their history, and they have no reason to think that they can't continue to keep the "Nintendo" name synonymous with gaming.
Sony: The success of the PS1 and PS2 tells them they can win in this market with the right system. The problem is the system they want to win (a cheap gaming console) may be different from the system they want to make (a home entertainment center). Whatever they decide, there will be a system.
Microsoft: So far everything is unfolding according to their original plan. Dramatically increased 360 sales over XB sales, and showed great strength in the US market. Unless there is a dramatic reversal of fortunes, the 360 will have been profitable for most of it's life span, and they can comfort themselves in knowin they could have done better without the RROD. Even better, they have seen the Wii triumph after coming out last, which should dampen any thoughts of rushing a new, faulty console to market prematurely. Like Sony, they will have to figure out how to balance a game console with a home entertainment console, but otherwise there is no real reason to cash in their chips.