And this why that is an opinion and not a fact. As a matter of fact, there have been several threads made by people who have played Knack and claim that they had fun and that it by no means the terrible game that critics make it to be. Additionally, parents who have played it with their children have also said that it was great especially for the children. Again, quality is subjective. Feel free to express your opinion, but please refrain from making absolute statements such as "no doubt" and telling people that are wrong when they simply point out that what you're describing is "not a fact". Even if 90% of critics and gamers agreed with you, it still wouldn't be a fact and there most certainly would be doubt. 

Also, better quality does not make a line up better for everyone. Say Resogun was released as a retail game and critics called it the best next generation retail game, but gamers didn't care for it, would Sony have the better line up? No, because those gamers are not interested in that game. I, for example, could not care less for Dead Rising, Forza and Killzone, so if a console had "terrible" games like Ryse and Knack, I'd consider buying that one instead. 

There are quite a few factors involved. Reducing it to two and making it one or the other creates a false view of the situation.

There is also the fact that this should have been somewhat expected. Despite starting later and launching at a ridiculous price, the PS3 was more popular than the 360 through most of its life-cycle. It has a much higher sales rate. The 360 had most of the advantages last gen, yet Playstation still emerged as the stronger brand. Why did many people assume it would be different this gen?

releasing a small powerful and nice looking console, at 399$, with 8gb of super fast ram, is nothing right, LOL.

Pretty sure most of us don't actually care about the hardware itself but price is a different story.

Microsoft hurt themselves alot too from the RROD thing early on.  I know that was a while ago but most of the people who buy consoles early on are your hardcore (people who buy a ton of games) gamers, and it's tough to sell a new console to people you already pissed off the 1st time.   I'm in that boat.  Not saying I would'nt ever get an Xbox One but I am much more content to wait and see if Sony can sell me on a PS4 this time arround. 

In my opinion, it's a combination of

1. MS dropping the ball with their initial plans

2. the price difference

3. disappointment in lack of 360 exclusives and focus on Kinect the last couple of years (people felt burned just like wii/psp owners did)

4. Strong first party games for ps3 the last few years and support of the console so close to the launch of ps4

5. INTERNET. The ps4 became the cool thing to have, so many people who are not even hardcore gamers bought it, just like they buy iphones.

people don't care about games performing and looking better?

You have the worst understanding of subjectivity I've ever seen.

Did it stop the PS2 and WII from dominating despite the fact that they had weak hardware ? 

Not really.  If that was true then the Vita would be whooping the 3DS.   Gamecube would have sold 100 million.   Sega would still be making consoles.  The Wii would have been crushed by 360 and PS3.    GTA on PS2 would have bombed.    It matters to a small percentage of people that buy consoles but overall it doesnt really matter.   People point out the Wii U being weaker as the reason why its done poorly but its really because of the lack of software that people actually want (sorry Pikmin,W101, and Wind Waker HD)