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There is one area Nintendo needs to improve dramatically, and that is piracy protection ...

While I wouldn't expect Nintendo to drop the Wii simply do to piracy, I do think that Nintendo will probably release a new console earlier than they might like to to keep piracy to a minimal level. How they achieve this is up to them; they could introduce a "voluntary" upgrade that renders Wii games at HD resolutions with much stronger piracy protection, or they could introduce an entirely new system.