I think people need to consider why Nintendo made the Wii the way they did in order to understand how they will produce their follow up system.
In my opinion, the Wii was chosen to be a low powered system because development costs were rising at a rate that was much faster than the growth of software sales. To deal with this problem Nintendo decided to focus on improving game play rather than improve graphics; Nintendo was uncertain as to whether people would accept this new direction and wanted to keep their risk minimized so they updated existing hardware (at a minimal R&D cost).
In 5 years time the industry will have grown quite dramatically from Nintendo’s efforts with the Nintendo DS and Wii, development costs will have peaked at a level only slightly higher than current PS3 and Xbox 360 development costs, and the hardware necessary to produce graphics that are noticeable improvements over the Xbox 360 and PS3 will be inexpensive and readily available.
With the combination of all of these factors I don’t see why Nintendo would continue with being as (comparatively) low performance in the next generation. Certainly, they may not be looking to push the envelope but they won’t be looking at as low of a performance system.
