Taking this at face value it was a good move for Nintendo. This doesn't mean it won't be a good move for MS though, just that it wasn't for Nintendo.
Nintendo wanted a console that sold at a profit. Given MS have removed a chip to get costs down now in 2009, I can only imagine in 2007 the cost of this kind of tech must have seemed prohibitive to having a console that sold for a profit.
Hence, from Nintendo point of view, a good decision.
Try to be reasonable... its easier than you think...