I'm starting to believe that there is a lot of people who simply do not understand Nintendo's strategy or motivations when they designed the Nintendo DS and Wii ... At the same time, I think there is a massive lack of understanding why the Wii and Nintendo DS are successful from Microsoft and Sony fans because they're outsiders looking in.
When the Wii and Nintendo DS were being dreamed up Nintendo would have been aware that these platforms were radical departures from the conventional design decisions and they would be difficult to sell; it would be difficult to sell the concept to third parties (in particular if they involved similar development costs to their competition) and difficult to sell to consumers (in particular if their price was similar to their competition). On top of all of this they would have been worred about the potential of releasing another virtual boy and would have wanted to keep the research and development costs of the systems down as well, and would be unwilling to take any losses on the hardware.
By taking the Gamecube and increasing its processing power they were able to manage all of their concerns; the hardware is inexpensive to produce and develop software for, and the research and development costs on the Gamecube had already been paid so minor modifications to the hardware would not be too costly.
The Wii is so successful because it is inexpensive, a major improvement over other consoles (in terms of control) and it is DISTINCT. Creating an "underpowered" system that doesn't add much in the way of new control and seems like a carbon copy of a more popular system will be a recipe for disaster.
Sony's best approach for the future would be to try to create a product which their competition isn't creating ... With the technological know how they have in Sony they might attempt to create a low cost, light weight, high quality set of sterioscopic glasses to attempt the VR approach; or they could attempt a multi-touch screen on their next generation controller.
Sony has to play to their strenghts and I don't think that anyone's strenght is losing money ...
