Did something happen to HVS which made them change their goals ultimately?

It was around the same time frame they changed the direction of this game, and The Grinder. And god knows what else.

Are they making these calls?

Probably the modest sales of The Conduit.   And to a lesser extent those of Madworld and HotD:Overkill.  They probably realized the core demographic on Wii was smaller and more descerning than they'd hoped.

250K is probably the most they can realistically expect for Conduit 2 and Grinder.   ToL / G:AD a new IP from a small developer in an even less popular genre could never expect big numbers.    TvsC did okay, nothing notable but okay, and thats a VS game from Capcom.  I think they did the right thing with ToL, actually, kaboshing it altogether might have been even smarter.

What made SEGA think it would be a good idea to publish this? I don't know what it cost to make, but this game will fail so hard it's not funny.

If HVS wants to make a fighting game then maybe they should, like, practise a bit first?

Ugh, I shouldn't whine so much but this just felt like a waste of resources...

I suppose so. Sorta contradicts their whole intention on the Wii tho. Now they're just like everyone else, and playing it safe.

I didn't totally mind the change they made with ToL, but it was obviously executed quite poorly. (Aside from "kaboshing it") they would have probably been better off making a full-on core experience. Better they did that and fail rather than just fail outright.

Nah.  The core audience is descerning and ESPECIALLY fighting fans.  There's no way HVS could come out with a fighter on the level of TVsC or Brawl.   At best it'd be equal to Castlevania Judgement and that wasn't exactly successful either.   'sides there's lots of mediocore 3D fighters on Wii already.      It was just a poor idea from the get go.

With their lack of experience in the genre, they were a bit in over their heads eh? Maybe I was in dreamland, but I was really hoping for something out of this title...something innovative. Reality has struck once again.

They should've made it for WiiWare instead imo. That's the place for testing the waters.

Worked well with Rage of the Gladiator

Why do you think it's so small? CoD still sells a million, and that's with no marketing. How about just the "more discerning" part, in that we don't buy mediocre games, we buy good games. Give a good game, and we will buy it.

And no, being niche but on the Wii does not mean the sales will stop being niche.

BECAUSE CoD only sells a million, even with TV ads which WaW had for the Wii version, despite a user base almost equal to 360 PS3 combined.     Compare CoD HD sales to Wii sales.  Wii's audience for that type of game is small.   If CoD can only crack a little over a million, then anyone, even Metal of Honor, Bad Company, or Left 4 Dead, if they had Wii versions, could only expect 300-500k on Wii.   So really, how much can Conduit 2 or Grinder expect to get?  Even less: 200-250k max.   But for HVS, that's enough.  If they can make that every time, expect yearly sequels.