1) What benefit does Nintendo gain by releasing a system that is the same processing power as the HD consoles?

Nintendo saved a ton of money by releasing a modified Gamecube as the Wii due to saving money on R&D, technology licencing fees, and no having to re-develop all of the software tools and technology; and, beyond that, the system's limitations acted to limit development costs of games because what was increasing game development costs on HD console games wasn't possible on the Wii.

Being that they have to spend the money on R&D and licencing fees anyways, the difference between releasing something as powerful as the PS3 or a much more traditional console is minimal. If Nintendo has to redevelop all of their software technology and tools (or licence them) the difference in cost targeting something as powerful as the PS3 or a more traditional console is minimal. Finally, the PS3 is already at a performance level where the only thing that limits development costs are decisions made by the developer/publisher.

I'm not suggesting that Nintendo will push the limits of technology, but after 5/6 years on the market most very low end Graphics cards and CPUs available put the HD consoles to shame.

2) The videogame industry is not a school yard and (for the most part) publishers and developers make decisions on what platforms to support based on business reasons. The most logical reason for why third party publishers "ignored" the Wii was that, before the Wii was announced, they decided to manage the costs and risk associated with HD console games by releasing these games on as many platforms as possible; and this resulted in (pretty much) every game being released on the XBox 360, PS3 and PC. The Wii being unable to match the technology of these systems was left out of development considerations, and it is likely that many publishers avoided producing similar games for the Wii using known brands because they didn't want to create competition for products they were releasing on the HD systems.

If I am correct, if Nintendo releases a system that third party publishers can include it in their development of most games it will be included. As development costs creep higher and higher I doubt any publisher would accept to lose 1/4 to 1/2 of potential sales because "LoL nInTeNdO iS 4 KiDdiEs!!!"

nintendo never go for highest spec but innovative game system

of course sony wont. there is still 5 years till the 10 year life cycle.

to 1, i don't even feel the need to answer.  we don't know exactly what nintendo is up to but all of the rumors circulating say the specs aren't higher than the ps360 by any significant amount.  when discussing the rumors that's the info i'm going to discuss.

to 2, i don't think the 3rd parties are schools kids but as you mentioned cost of games are creeping higher and higher and at several times from several developers we've heard the line, "exclusives are a thing of the past".  3rd parties want to develop multiplates to mitigate risk or not take the risk. so either:

A) the new wii is treated another place to port games currently developed for ps360 games.

B) the new wii out specs the ps360 and there is a serious question (imo) about whether 3rd parties support it at all.  would you develop for a 100M console market or a console market that is yet to exist, only has one outlet, and is even more expensive to develop for?

personally, i see A is the most likely option.  nintendo isn't going to go bleeding edge on the tech side, that's not their thing.  so even it the hardware is significantly better it won't be better enough to justify a complete retooling imo.

also, my assumption is that ms and sony don't release a new console immediatly which should be pretty sound as both ms and sony have recently sent out for new bids on hardware meaning they can't possibly be ready to launch all that soon.

We have to remember that immediate reactions are inadvisable (and largely impossible). We're forgetting that if the rumors are true, Cafe is a year and a half out, and I would say that either way, Sony and Microsoft would be unlikely to go past 2013, which would put them at a year behind, or easy striking distance

It would still make the 7th gen longer than most (possibly all, though the 2nd gen ran as a marathon) if we go from release of first console to release of first new competitor (360 2005, Cafe 2012)

First off, the analysis of the rumours is (predominantly) fanboy spin which seems to ignore a lot to claim that the hardware is only as powerful as the HD consoles. The suggested GPU family has demonstrated performance well above 4 times the processing power of either console’s GPU, and will likely be heavily modified with software far more optimized for it than what was released on the PC; a far more valid interpretation of this hardware would be to suggest that it may be 4 to 8 times the performance of the HD consoles.

Beyond that, the impact of this performance increase will heavily depend on how it is used. If you have a system that is 4 times as powerful as the HD consoles with games running at 720p @ 30fps it is unlikely that an affordable system will be released for several years that would play the same game with more than minor detail improvements above 1080p @ 60fps. By Nintendo sidestepping a meaningless technical feature (1080p) they could easily get very similar results to far more powerful hardware.

With that all said, until the next generation of systems get established I wouldn't expect third party publishers to do much more than produce enhanced ports of current HD console games to those systems. It is going to take far more than processing power to attract people to these systems, and it is likely that this is where Nintendo is going to try to dominate.

PSP isnt a console, and think about it, the price of the PS3 is still as high as when the PS2 came out, but wait and see, you doubters are going to eat crow again :P

It's a handheld console, same thing.

I don't want to see you disappointed...