I think the mistake that Bruce and several Wii doomsayers make is not considering that Nintendo is in a very strong position to prevent slowing sales ...
Right now Nintendo is (from our understanding) turning a profit on every Wii and is selling a ton of software, which means that they could (potentially) drop the price of the Wii by (up to) $100 with no serious consequences. As time goes on and they take advantage of the 65nm or 45nm process (and integrate the CPU and GPU) they will see further cost reductions.
On top of their massive cost advantage the #1 cited problem for the Wii (lack of HD) is really not that big of a problem to correct; it isn't that complicated to "improve" your GPU to upscale or interpolate your textures, increase the output resolution, and perform high levels (16x) of Anisotropic Filtering and Antialaising when you are already taking advantage of a dramatically smaller process (45nm). In late 2008 or early 2009 Nintendo could (easily) release a Wii HD which (essentially) upscaled all Wii games to 1080i,720p or 1080p without any developer interaction which was still (dramatically) cheaper than the XBox 360 or PS3; it still wouldn't be as powerful but most people wouldn't know that anyways.
