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JaggedSac said:

Here is a good graph of hardware sales growth from 2006 to 2007.

http://www.next-gen.biz/index.php?option=com_content&task=view&id=8750&Itemid=2&limit=1&limitstart=5

Software down - Hardware up.

The industry grows every year anyway.

The thing that helped most this time around was probably the high prices of consoles more than anything else. (The charts in your link are for revenue only)

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Nintendo themselves did some research into their current userbase about 1 year ago, and found that about 90% of Wii owners had owned a console from the 6th gen. (so add in those who skipped 6th gen but had a previous console and it's probably at least 95% of Wii owners having a console before.

Of course that has probably changed now (probably between 80% and 90%) but still a lot of Wii owners were gamers before.