I really don't think that Microsoft or Sony thought that gaming was going to be a big thing for the future, but rather just a catalyst to get them where they wanted. Sony was trying to push the focus toward an electronic powerhouse to take over the home entertainment center, Microsoft wanted to use 360 to extend media center and help leverage their own plans to have an integrated computer run household.
Nintendo was the only ones betting the farm on games. I believe that Sony and Microsoft even said that gaming was on the way out and not as big of a deal as it used to be, though I don't remember where or when it was said because it has been a few years since I read it.
As I see it, games would eventually have molded into a new form as a side show to movies, music, and other more popular forms of entertainment. These major players, MS and Sony would gladly see gaming take a backseat as long as their plans followed through. For Nintendo, though, games are all they know and they can't let it's whole existence, their "baby" and our passion eventually phase itself out.
Games wouldn't ever completely "go away." That just isn't happening, but they would eventually become niche with only a very few titles getting any spotlights, like the occasional Madden, Guitar Hero, or if another surprise hit comes along to temporarily extend game industry hopes, but eventually it would settle into a bland and overlooked hobby to a select few who remembered the good old days.
This might not have happened for another 2 or 3 generations, but with the way Nintendo was loosing fanbase, they needed to make the change NOW or they might not have had enough respect left in the industry to pull off what they hope to accomplish by the end of this generation.
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