I think in retrospect they should've just spun the Wii off entirely into a casual/fitness brand, with only casual and fitness style games along with maybe some Mario spin-offs (Mario Party, Mario Dance, etc.).
Things like Sin & Punishment, Metroid Prime 3, Xenoblade, Red Steel 2, Conduit, etc. never really sold great on the Wii even despite its mammoth userbase, Skyward Sword under-performed as well.
What I would've done in hindsight is released a "New Wii" around 2010, which would basically be the same as the original Wii with a new cheap GPU processor that would be able to run newer games in 720p (same visual fidelity more of less though). No tablet controller. New updated OS with more storage, better browser, eShop with hundreds of back catalog games available for download + easy access to Virtual Console. $169.99 at launch, scaled down to $129.99-$149.99 quickly.
This would be a quiet/soft launch and I'd keep a small team at Nintendo to work on a handful of new casual games for the system yearly. All casual stuff. I'd turn Wii Fit into its own channel with updating fitness challenges and lifestyle reccomendations.
In 2012, I'd launch a traditional Nintendo console that would be on par with the PS4/XB1 with a one year head start and devote the core Nintendo teams to making games for that. No gimmick controller (tablet pad), the audience and focus for this platform would be clear -- mainstream gamers who like to play deeper game experiences.
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