I don't know... Why does they?
I kid, I kid. I am the master of bad thread titles.
The short Answer: Because they don't have to look good to sell.
Wii is being marketed to both gamers who buy games for reasons other than graphics and to non-gamers who think that games look good anyway. As the casual and core-focused Wii games become more competitive, they will get better looking.
On a side note the best selling Wii games are also the most polished looking ones.
Wii play, Wario Ware, and Mario Party may not be technically good looking but the visuals are crisp and they add to the experience.
Super Paper Mario and Zelda = Gorgeous.
RE4 = Remake of a gorgeous game.
Red Steel = Pretty, though being a launch title helped sales.
Rabbids = Beautiful.
Graphics is part of a total package, to be a million seller (with 100's of games available) third parties need to make games that are as interesting, polished, and fun as Nintendo. But they don't need to have million sellers to be profitable.
If you can make a game for 1.5 million dollars and sell 70k copies, then repeat, you can be profitable too. Or if you can make several games using the same resources and have moderate sales, you can be profitable.
I would cite regulation, but I know you will simply ignore it.
