In theory, the freemium model isn't bad, it's only in the execution.
For software, developers are giving away the core game for free, with their only income generated from additional features. Here presents a conflict of interest from developers: they need money, but providing too great an experience from the free portion of the game may reduce any incentive for users to spend any money on additional features. We can see the effect this has had on current freemium games, where gameplay is geared towards requiring additional features, be it lives or needed stat-boosts etc.
The issue with a freemium hardware model is the effect it may have on software, in order to generate the associated lost income. An ideal company would keep a traditional software model, simply incurring additional profit from the sheer volume of hardware that would sell at ridiculously below-cost prices, leading to greater market-share etc. Instead we have already seen online subscription fees and dashboards used as advertising billboards, what other money-making schemes will be thought of when hardware is sold at even lower-than-cost prices in a race to the bottom?
Another thing to consider is the effect this would have on competitors' strategies. Suppose Nintendo do go all in, with the expectation that developers would be lining at the door for a piece of their marketshare, could competitors see this as an opportunity to moneyhat third parties (incurring severe losses themselves) to keep them away?
