Yes, it is very important that Nintendo makes hardware. The software guys work with the hardware guys to determine what will go into the next console. If they weren't working together we wouldn't have gotten the Wii remote and Mario Kart Wii wouldn't exist as we know it today.
Back in the N64 days, I would have been playing Mario 64 on a d-pad rather than an analog stick, as the PS1 didn't come with an analog stick at first, and Mario 64 was a launch title.