I kinda think Nintendo should've been more nuanced in their approach and refreshed the original Wii earlier and left the Wii brand as being strongly casual-focused and budget friendly.
Wii HD - For casuals and families, basically just the original Wii redesigned with a new Miiverse style OS, HDMI output, upscales old Wii games to 1080p, has a slightly better chip + larger frame buffer that would allow some newer games to run in HD. Greater emphasis on eShop content. $149.99 sticker price, 8GB storage (expandable). Release fall 2010.
New Nintendo Entertainment System - Premium console, with a decent modified GPGPU in the 1-1.2 TFLOP range (ie: the AMD 7770) with 4GB of DDR3 + a nice fat pool of eDRAM (64MB?). Low power CPU (quad-core, 2 GHz). 4-5x more powerful than a 360 with much more modern DX11 style feature set. Full "entertainment" functionality with a tablet controller that can function as a TV remote/living room hub (Nintendo TVii service). Easy to port from PC titles. $299.99 (basic, limited quantities), $399.99 deluxe (standard). Initially aimed at core players, set-top-box market, gradually over time as price reduces could be aimed more at casuals and kids too (like the 360 has). Release fall 2012.
Sure MS and Sony could break their backs making a system even more powerful, but they'd be reaching the point where no dev would have the budget to make a game that really takes advantage of the extra horsepower. 4-5x leap with DX11 style effects and ease of porting from a PC would paired with a year long headstart and an established 10-15 million unit userbase could've been a winning formula for Nintendo IMO. Would've gotten lots of dev support and gotten a lot of PS3/360/Wii owners who are tired of this long console cycle and want a more tangiable hardware upgrade.
