Honestly, I think Nintendo knew that it would be difficult to get any third party publishers on board with the Wii if they would have to spend as much on Wii development as PS3/XBox 360 development; at the same time I think Nintendo knew few people would take a chance on Wii if they had to spend $400 on the console alone. These factors meant that Nintendo was limited in the ammount of processing power the Wii could have.
Personally I suspect that (back in 2003) Nintendo was working on a low power consumption version of the Gamecube architecture to be used in a handheld in mid 2006 (similar to the PSP) and an 'advanced' version of the architecture to be used in their next generation console. Sony's plans to release the PSP in early 2005 meant that (like the Playstation/N64 and PS2/Gamecube generation) Sony would get 18 months lead time before Nintendo release their platform so Nintendo needed to change strategies. They couldn't cut the life of the GBA short for simply more power so they designed an unconventional platform (based on the GBA architecture) and planned to sell it as as a different line than the GBA; they continued to design this low powered Gamecube in case the DS flopped so that they could reduce a portable Gamecube to compete with the PSP.
In early 2004 and early 2005 the Wiimote was being designed as an add on for the Gamecube but Nintendo decided that it would not be well supported (as an add on) so they needed a new system; as I said earlier they decided they needed a low processing power system. The DS had not taken off and become super successful (but was successful enough that they didn't need a new Gameboy) so Nintendo was not certain of their strategy with the Wii. This uncertainty meant that they decided to take the low power-consumption Gamecube architecture and overclock it rather than take the advanced Gamecube architecture and 'run it slower'. The result is the Wii.
Had Nintendo known how successful the DS and Wii would be I'm pretty sure they would have choosen a somewhat more powerful architecture for the Wii ...
