If they were walking into a "no win situation" against the PS360, then they shouldn't have made another PS360 type system, lol.
It's not like technology hasn't advanced far beyond the 2005/2006 era chips of the PS360, Nintendo is simply stubborn and formulaic.
The Wii was basically 5-6 years old tech + a new controller, so Nintendo was to going to use that same formula over again, no matter what logic told them.
Their new controller hasn't taken off like the Wiimote did though, and now they are stuck with their pants down.
I also think in general the whole "mini-game" formula has grown tired. It was fun in 2006. It's not as fun six years later after Wii Sports, Wii Sports Resort, Wii Play, Wii Play Motion, Wii Fit, Wii Fit Plus, Wii Party, and the 1000 other knock offs (Carnival Games, Kinect Sports, etc. etc. etc.). Even on Kinect you can see Kinect Sports 2 did considerably worse than the first one and Wii Party wasn't that big of a hit in the West.
"Mini-games" are now the domain of smartphones and tablets where you can get them for $1-$5 a pop and a lot of times they actually have more depth than a lot of the Wii Sports mini-games. People love their Planets Vs. Zombies or Farmville or Angry Birds.
Nintendo Land would've sold 10+ million copies on the Wii four years ago I have no doubt (retooled to work with the Wiimote of course). But today? It's a tired concept, and even if it is entertaining, people simply don't want to pay $350 to play that when there are far cheaper options.