The Wii is actually capable of internally rendering an HD image. But it's output is capped at 480p. There are 2 reasons for this.
1. Initial HDTV adoption rates were minimal. Upping the Wii specs to do HD well would not have been cost beneficial.
2. Just because you can render at a resolution doesn't mean your textures, polygon counts, frame rates and everything else will be dandy. In fact, resolution isn't the end all, be all graphic factor to begin with. Look at how many HD consoles games are not even rendered in actual HD resolutions. A lot of them...but you can't tell because the shaders, texture resolutions, polygon counts and other factors are more predominant in how 'good' your graphics look.
The rEVOLution is not being televised
