I don't believe mobile phone games will move upmarket. The mobile devlopers don't know how to make a game that appeals to the handheld buyer, nor are they willing to fund games that take over a year to develop. They can't yet get mass appeal like Nintendo's first party games can.
At the same time, I don't believe ports of console and handheld games to phones, no matter how good looking (Rage or Quake for example) have sold nearly as well as they would/did on their natural platform. People aren't buying phones for games yet, there is no Halo or Mario or Wii Sports to be the magnet.
If either of those things changes then Nintendo is in trouble, but Wii Sports/Mario Kart/NSMB has the middle of the market between phone games and HD games completely taken.
The PSP and PS3 has shown that media features don't sell consoles. At the moment, it doesn't look like gaming features sell phones.
