Was Nintendo right to opt out of the graphics arms race?

[Pemalite]

Soundwave said:

MPEG-4 could compress your standard MPEG-2 DVD quality video of the early 2000s by a 5x compression rate, so that effectively meant a GameCube disk could store as much FMV as any full size disk game just by using a different compression format and the quality difference really wouldn't be that big of a deal. Especially at that time, we're talking about most people owning SD 480i resolution 27" inch tube TVs or smaller in most cases. I believe even better MP4 compression was even available by 2002 which would compress that file size even moreso. 

EDIT: I looked this up and apparently FFX on PS2 was 4.2 GB total but most of that file size was uncompressed video FMV and voice data, the actual game itself was 900MB only, remember there are no HD textures this is the SD era actual game data didn't take up that much space. You could have likely easily used MPEG-4 compression on the video files and reduced the audio files significantly even with the compression methods available circa 2001/2002 and put this game on the GameCube without much problem. Maybe it would be a 2 disc game, but that's not exactly a big deal. 

Gamecube, Playstation 2, Original Xbox did not support MPEG-4 video decoding natively in hardware.
MPEG-1/MPEG-2 is the standard.

Xbox 360, Playstation 3 had hardware MPEG-4 support in their video decoders. (Wii missed out.)

All these consoles could do it in software however... With caveats. - But that would compromise other parts of running a 3D game.

So no... It's not as simple as "Lets use MPEG-4".