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Ah, I wasn't taking into account the reasons why the Wii is significantly smaller and takes a lot less power consumption than the other two consoles. I suppose they could do something similar to what the PS3 initially did, PS2 on two chips (EE and GS) to ease backward compatibility, but it definitely would increase the size of the console. I'm assuming they'd have to make it larger if we expect Wii HD for next gen.

It is an assumption on my part that they can use existing tools, based on the fact that a number of 360 games are seeing PC releases, and vice versa. If you're a programmer, you can actually hop onto microsoft's site and get the XNA Game Studio Express. With this tool, you can build a game that works on the 360.

Check this page out: http://www.xbox.com/en-US/dev/tools.htm

Edit: Notable tools used include - Maya, 3ds Max, CryENGINE, Unreal Engine 3, Havok Physics Engine, Bink, etc.