N64 was more powerful than PS1 and Gamcube was more powerful than PS2. So simply making a more powerful system is not the answer.
The issue is that third parties were treated horribly by Nintendo for a long time, and then many of them wanted to focus on making cinematic games with prerendered scenes and backgrounds, which cartridges couldn't pull off as cheaply, so they went for where they could use those assets, and took the sales with them.
Nintendo has to figure out how to do their own thing, like the Wii or the Switch, while keeping the console cheap and close enough to the others in power that it can get many of those games. It remains to be seen if the Switch is at that level, but initial sales give third parties incentive to jump on board and it is easy to use the latest Unreal engine with.
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