The Wii could have had better specs if they wanted. Just 5 years prior to the N64 to GameCube transition was a massive increase in processing power and that was still $199.99 day 1 in 2001.
They went bargain basement on the Wii and DS specs IMO because they were hedging their bets, the Wiimote and DS were experiments and if they failed I think Nintendo was quickly going to release a Game Boy successor that would've matched/exceeded the PSP in specs (hence all the "DS is actually our third pillar and not actually the Game Boy successor" talk early on) and they probably would've made a different home console too.
In that scenario around 2006 or 2007 I think Nintendo would've released "Game Boy Next" and it would've had better than PSP specs.
That said even internally it seems like all of Nintendo's brass did not agree with the decisions being made. Miyamoto for example has said not making the Wii HD capable was a mistake. They miscalculated how quick HDTV adoption was going to be, they thought people would stick to SDTV sets for longer than they did.
