I think they can, but I'm not sure if they will. They need to make something that really is a high-quality and high-budget project - Don't get me wrong, I think MadWorld was a pretty good game, but I severely doubt it had very high production values, and given it's sales, it's probably a good thing it didn't.
They need to think outside the box, do something that Nintendo aren't doing but will still be appreciated by Nintendo's core fanbase. I think this is a problem that The Conduit had, it was a competent FPS and a good game, but it didn't light up the charts because it just wasn't anything really special. Their biggest selling point was that they were using a special graphics engine, and odds are, if you bought the Wii, graphics are pretty low on your priority list. I own the Wii and I love the Wii and I know graphics aren't very high on my priority list.
I strongly believe that Sega can do this if they put all the pieces in the right places. I just hope they actually will do it.
