A lot of people forget that DS had a rough start, too. It launched with a port of Mario 64 with a thumb attachment that went over the end of your thumb, meant to rub the bottom screen as a virtual joystick.
It was really not until 2006 when New Super Mario Bros. launched alongside the DS Lite, that the system began to experience a sales trajectory that no other handheld had ever experienced before. Of course, Nintendogs and Brain Age, among others, also made an enormous difference, and contributed to the DS selling to people who normally did not ever play video games.
To compare DS to 3DS is to neglect to take into account the extreme market forces that have changed the entire industry. The bottom of the handheld market is gone, completely gone. Lost forever to free-to-play games on mobile. The middle of the market is vanishing as we speak, and at this point only extremely attractive AAA software is selling on handhelds. When I say handhelds, I'm basically talking only about 3DS. As PS Vita is dead everywhere except in Japan, where handhelds are far more dominant than consoles. But that is another topic in and of itself.
This sort of goes back to one of the points made in the OP, that 3DS hardware is down significantly from DS, yes. That is to be expected. The real concern however, is that software sales are so low. 3DS has a fairly low attach rate, particularly when you consider that it's primarily marketed and aimed at core gamers.
I could keep going on and on, but I'll leave it there for the moment. Hopefully I've contributed something meaningful to the discussion.
The Screamapillar is easily identified by its constant screaming—it even screams in its sleep. The Screamapillar is the favorite food of everything, is sexually attracted to fire, and needs constant reassurance or it will die.
