It will. I don't think really for the reasons that you bring up. The games serve consumers faster and more efficiently than dedicated handhelds can. They may have hit upon a tier of gamer unbeknowst to nintendo with titles like cut the rope, angry birds, tiny wings, press to fart etc. Epic with UE to iOs and the development of better control schemes over time are helping them better serve the higher tiers of the market.
This diversity will only continue. Not only is anyone with a CS degree or just a good idea starting to create unique applications but even professionals videogame industry players are as well. This funnels time and money away from the development on the dedicated handhelds in many of the larger publishers who are more likely to be developers of a dedicated handheld game. EA, Gameloft, Epic to name a few on the Western side. SE, Capcom, Sega on the japanese side. Companies are complaing that retail isn't the whole pie of gaming and now NPD will start having download estimates. iphone/ipad gets a section on metacritic. Read the signs.
Because of the smartphone race we will see uber cheap dumphones that are smart enough to run appstore games in only a few years. They are taking away time and deveolopment resources and there are less barriers to entry. I know many people say kids don't have phones but they do have MP3 players, Tablets and the assortment of other devices that probably can and will be using these popular mobile OSs.
Nintendo can talk all they want about low app prices devaluing games but that doesn't make it so. . People in general don't value games that highly. They see an entertained bus ride for $1 as way better than $20-40. Even if not most are certainly sufficiently satisfied. Thier next system better be pretty damn novel cause I don't even see DS level fires in 3DS. Though DS only even began to outsell the PSP after some a couple of crazy big hits so who knows but I just don't see it in Nintendo anymore.
