One of the things I think Pachter (and a lot of people) missed with their "WiiHD" predictions was that there is a very small window where it is a intelligent business decision; and even then the right market conditions have to be in place to go forward with that strategy. Basically, you’d have to be near the mid-point of a generation and starting to struggle because your system is lacking a feature that is deemed important by most gamers; and you need to be able to release an enhanced system that includes this feature, games are compatible with both versions of your system, and people are either willing to upgrade to your new system or are satisfied with your current version.
At this point in the generation, the best approach for Nintendo (or any of the console manufacturers) is to focus on their next generation console and to use quality software, bundles, and price reductions to keep demand high to release your new hardware on a reasonable timeline. While I wouldn't anticipate Nintendo doing this, or needing to do this, I would imagine it would be more realistic for them to sell the Wii bundled with 2 controllers and 2 games for $99 than to release a new home console before Q4 2011; or for them to release a modified Wii that outputs at HD resolutions.
