Alright, I'm just going to use haxxiy example. Say it has exactly what you said Crysis at max=dead rising heavenly sword number of enemies+1080p...but it's at 30fps. Would you be willing to shell out another 400 dollars for a system that can do the same thing at 60fps? At some point it's not even close to being worth it.
I think the wii has shown it's getting to the point of diminishing returns. The mass market doesn't care anymore, wii graphics are good enough to make the majority happy. I don't think it can go much further before a 5-6 year generation is remotely necessary and they will start to stretch to 13-15 years.
But I think it's premature to say "It's happened with the wii". If the wii lasts ten years, then yes it's happened. But if the wii2 comes out with PS3 level graphics and people are willing to buy it because it's prettier, then it hasn't happened yet.

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