It would be better in some ways, worse in others. It would be healthier, because both Sega and Nintendo need to make money. Sony and MS games divisions can lose money, so they push hardware faster than makes sense financially. This has also pushed game budgets into blockbuster levels which has hurt software developers. There would also be less of the corporate agendas of pushing Windows Phones or BlueRay or any of that garbage, which would be refreshing.
On the flip side both MS and Sony are weak on the first party side of things. This allowed 3rd parties - especially western developers - to take on a lead role and become true AAA game makers. I think Bungie, Ubisoft, Activision, Take-Two and others have brought some nice diversity to the gaming world. Under Sega and Nintendo their games may have been overshadowed by the 1st party flagships.
I think we would have still seen FPS become prominent since they originated on PC and would arrive on consoles as soon as the tech was strong enough. I think we also would have still seen the "maturation" of the gaming demographic anyway. People like to credit Playstation with expanding the gaming market, but I don't think so. The trend was happening well before that as people who grew up with gaming grew up.
One thing I would be curious to know is if N64 would have gotten solid 3rd party support or if 3rd parties would have thrown their support behind the CD-based Saturn instead. FF7 published by Sega? That could make for a different gaming world...
