Most people don't want a game console strictly for Nintendo games anymore than people want a Blu-Ray player that only plays say, Disney movies or something.
I think that's the problem, Nintendo can release games, but their franchise portfolio is only good enough to push a console to 20-30 million people unless they have some kind of Wiimote type game changer, but I think things like that happen once every 20-30 years and are extremely difficult to replicate (as Nintendo is finding out now).
Handheld market is easier for Nintendo to navigate because it skews more towards kids and gamers who don't care as much about graphical fidelity and/or violent themes in their games.
The home console more and more is going to become the domain of the dedicated game player who likes to play intensive gaming sessions for hours and hours. Those who like video games but not to that degree are moving away from having a home console period. Things like Angry Birds and Plants Vs. Zombies scratch their gaming itch for the 15-20 minutes a day they might care to play on any given day and it fits more into their life style than a $300+ bulky/loud home console does these days.
