I think you're mistaken here, with all respect. In the link I provided in OP, Iwata mentions that he is ready to dish out resources for what he calls power games. Though Nintendo put the padlet as priority over graphics, it doesn't mean that graphics aren't a priority for them. Had the U not had a padlet, you can be sure the extra room for cost would have been put in processing power.

Also, though you're correc that Nintendo need to dish out more games, we know that they are making use of strategic partnerships to satisfy that objective (which they can't do all on their own). Also, they are a manufacturer and need to make sure there is a solid game engine on their platform if none is built by a partner, it's a no-brainer. Not only that, we know that resources at Retro are being employed for tooling Nintendo internally for game development of advanced games (such as Zelda). So it's only logical to expect Nintendo to extend that service to its partners (and in the process pull the finger to the competitors who say things like the U can't handle Frostbite).

What Nintendo needs to do is to prove that different gaming genres can be popular on a Nintendo console.

Bayonetta 2 is a good first experiment. However, it's not enough. They need a TPS and FPS they can showcase and other types beyond that. They need to go to developers and make an offer for an exclusive, or failing that, offer to subsidize a Wii U version. They need to swallow some of their famous pride and really, really push a third party title. They need to pay for advertising, they need to cover possible losses, and they need to offer support that exceeds what Sony or Microsoft is doing. Nintendo is far removed from the catbird seat they once occupied.

They've got to prove that putting core titles on the Wii U can be successful. If they can manage that, then they've got to be ready to welcome publishers like EA back with open arms. Some rabid fans might object to that, but we're talking about business, not high school drama.

As far as I can see, the initial burden is on Nintendo. They have a lot of work to do and no right to expect third parties to do it for them. If they pull out all the stops and genuinely make a real effort, I'll be rooting for them. If they're simply happy to produce a Mario-box, then so be it.

Bayonetta 2 is going to be a big deal. The entire industry is going to be watching very closely. Nintendo had better promote the hell out of it, and not by having Bayonetta appear in Mario & Sonic at the Olympics or whatever.

If Nintendo does all that, then the next burden will be on Nintendo fans to buy those different genres.

that doesnt make much sense, how can they produce cutting edge engines when the system that would be powering these engines are themselves not cutting edge?

Is Unity competitive with UE and the other top-tier game engines of the industry?
I am not sure what the answer is but I'd think it were a no.

In this scenario, 3rd parties could rely on Nintendo expertise, save time and money from working on their own systems, and make the best use out of the U (which they probs couldn't achieve on their own proprietary engine).

For example, if you compare ZombiU to TLOU, there is a clear difference. Even though TLOU is 7th gen, it still has effects that would satisfy the non-casual crowd when it comes to visuals, even though it isn't next-gen it would be, in al relativity, cutting-edge. Also, I mentioned in OP cases where cutting edge wasn't necessarily dependent on hardware capabilities but on scientific breakthrough. Correct me if I'm wrong but I believe that kind of thing could be integrated into an advanced U game engine.

a game selling less than 500,000 WITH a bundle in 6 months is nothing to really be proud, of if thats the kind of sales we have to look forward to on Wii U then they better be multiplat

power games could mean anything

To offer some support for happydolphin, I don't think it's with blockbuster publishers/developers that Nintendo having a free engine would help with but rather for winning second level projects which might grow into more prolific franchises.

As an example, look at Demon's Souls, which used Sony's free-use engine. It's been a boon in Japan, with studios like Nippon Ichi and Gust employing it for several titles each. Perhaps Nintendo having a free engine could promote more projects of that level?

The ZombiU engine could use improvement, let's be honest. If we compare ZombiU to some top-tier 7th gen stuff (TLoU, TLG), I'm not sure ZombiU's visuals compare well. Whereas using a Retro engine many features could be leveraged. Ultimately whether it's ZombiU or a new exclusive, not only would upfront costs be reduced, but the quality of the visuals would be enhanced. Multiplats are not part of the plan, and I agree there.

When it comes to exclusives, when it comes to Nintendo consoles it's the only way to go for the coming gen, because the U will not be able to compete with the other two platforms (I'm sad to admit it). In other words, the U will only get exclusives. Whether these are moneyhatted or made out of the hunch of a business opportunity (ZombiU?), the fact is that U games will likely be exclusives if they want to sell any reasonable figure.

About 3rd parties, I believe it's time to make a distinction of camps, now that the cat is out of the bag: 1) those that will snob Nintendo due to political reasons or because they don't understand the business opportunity on a Nintendo console, and 2) those that see an opportunity on Nintendo's platform and would support the system with exclusive content. I believe this divide will become more and more clear in the coming months and, with this divide, companies will begin to understand more clearly the business opportunity Nintendo's console presents to 3rd party partners. 

If a 3rd party company can't afford UE/top-tier engines, then chances are they can't afford the budget necessary to take advantage of them either which would make Unity a better choice for their needs.

And I don't think your scenario would help with multiplats since those are built on one engine anyways.

There are many steps Nintendo need to take to better their situation, but I don't think this is one of them.

??? theres nothing cutting edge about TLOU though, likewise for Zombi U. People are being satisfied because it looks to be another good game on a system that has been on the market for 6 years. Wii U been on the market for six months. Not dependent on hardware? News to me, what would that look like?