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however after that PS3/360 will by realitivly cheap for the bang HD offers and sales will start to pick-up from the casual gamer market which the Wii and PS2 are enjoying now.
Not gonna happen, or at least, very unlikely. Once the majority of support is behind the Wii, this will result in more hardware sales from the casuals. Even more software will be made for the system brining even more people in. More Hardware->More Software->More Hardware->More Software. Basically a cumulative snowball effect that is hard, if not impossible to overcome. If this were to happen, I'm sure great HD based games won't disappear. There is clearly a market for them, they are just tiny compared to the potential market that the Wii can tap. The XBOX and the Gamecube tanked last generation but that didnt stop Resident Evil 4, Halo II, Super Smash Bros Melee from being made for both consoles.
we would be stuck with 1st gen console games
The NES had a 10 year lifespan, and it looks like the PS2 is gonna have the same. I expect to see tons of Wii/PS2 ports in the immediate and medium term future.