Realistically ...
Nintendo choose the hardware for the Wii with a focus on selling every unit at a profit, reusing their tools and technology for game development, and keeping game development costs down because they were heavily worried about the Wii being unsuccessful and/or third parties not supporting the system; if you're going to remain profitable on a system which only sells 10 Million units you don't really want to lose money upfront or have massive development costs.
When they decided to go forward with the Wii (rather than a more conventional system) they probably took the Gamecube's hardware and made whatever changes which would give them the most "bang for the buck" ... increasing the cache size on the Gekko or doubling the number of pixel pipelines on the Flipper (while increasing the clock speed) would put the system close to the limits of what SD can display without moving into the expensive material effects (from advanced pixel shaders).
One important question is whether graphics beyond what the Wii can produce actually matters?
I'm personally of the belief that videogames are a lot like comic books and cartoons in that making something look more realistic does not necessarily make it look better; quite often a simple line-drawing is far more interesting than a photograph, and can convey far more style and emotion than a movie.
