I'm of the opinion that Nintendo's need to manage the risk associated with the Wii made it the system it was ...
With that said, neither the HD consoles nor the Wii really represent what I would call a typical console when it comes to processing power. The HD consoles are more powerful than most consoles have been (upon release) and this made them larger, more expensive, and much more energy hungry systems; and the Wii was a less powerful system because Nintendo wanted a smaller, less expensive and more energy efficient system than most consoles have been. Had Nintendo released a more powerful system (4 to 8 times the processing power of the Gamecube) and still focused on 480p I think they would have increased third party support while decreasing the number of potential consumers who complained about graphics.
I know there are those people who think that it not being HD is a major negative, but even 5 years into the generation lacking HD hasn't really hurt the Wii that much; and with that kind of processing power, the Wii could have delivered very nice graphics while maintaining 8x or 16x AA and 8x or 16x AF (which would limit most of the obvious graphical flaws associated with standard definition gaming).
