You are hard on Nintendo, they didn't fail in anything, Wii is awesome.
What Nintendo did was introduce a new audience into gaming, and that was their goal. People who would not have been too interested in gaming tried their friends Wii Sports, or Wii Fit game, and enjoyed it so much they bought one, and showed it to all their friends who then bought more Wii's. These casual gamers, don't care much for Call of Duty, or MGS, or Gears of War. They play games for 30 minutes at a time, and thats it, their attention draws somewhere else.
I beleive the reason Kinect is selling so well is because Nintendo, just can't make more then a handful of innovative games every year. Like you said their most innovative ideas came early, and DKCR may be great, and is selling well, it's not so much a new concept, just a well developed simple game.
It's not entirely Nintendo's fault, they could realease 5 more quality titles like DKCR or Kirby this year, these games are not new concepts. Nintendo tired making innovative peripherals, like Wii Fit, and there are a lot of new concepts on the Wii, but without new hardware Nintendo cannot continue making any new concepts. They had to make the Wii Plus add on, in order to make a proper sword fighting demo, and in the future more accurate Wii games.
What MS did was saw Motion gaming as a successful medium, and they noticed the Wii had peaked, and is slowly losing sales. It's only a short matter of time before Nintendo announces their Wii successor, but until then MS could essentially garentee a second place this generation by making a large scale motion add on to their 360. Nintendo can't do that, the Wii itself doesn't cost much and it would cause a lot of confusion among gamers much like old SEGA consoles.
Nintendo played it smart, but they also played it safe. They had ideas like the Vitality Sensor, but we have yet to see anything from that. I'm sure the Wii successor will shock us all and kill off all current gen sales.
Until then, kudos to MS, they made an appealing peice of tech and released it at a great time in their consoles life, essentially re-establishing itself and giving their console a fighting spirit.
I'm curiously anticipating Sony's responce to this situation. I don't think they will be too happy to see MS take majority sales worldwide among the two HD consoles.