Keep these points in mind:

1. The Wii U has sold 78 million pieces of software. That's around half the software that sold on the Wii since the Wii U launch date.
2. 2015 was the first year Wii U sold more software than the Wii, but barely. http://www.vgchartz.com/yearly/2015/Global/
3. 2016 is the first time the Wii U has had more weeks with better software sales than the Wii, but not by much.
4. Wii software outsold the Wii U worldwide in the latest chart http://www.vgchartz.com/weekly/42519/Global/ And again the week before http://www.vgchartz.com/weekly/42512/Global/ and the one before that http://www.vgchartz.com/weekly/42505/Global/
5. The Wii completely lacks first party releases from Nintendo, yet still manages to compete with Wii U.

The benefit of the Wii U was that Nintendo became experienced developing in HD, so the Wii U isn't a total loss. It was called a stopgap console by some before it launched, and that prophecy seems to have come true. Purely from a business standpoint, would Nintendo have been better off if it released all its first party software on the Wii and not released the Wii U at all?
Now from a developmental standpoint, same question, all first party software is released on the Wii; but with the Wii U existing as a premium Wii HD? That way certain devs could still experiment with HD graphics while they prepare for the NX.

A. Due to the much higher userbase, would software sales have been much healthier had Nintendo brought all its first party software to the Wii?
B. Would more third party software be released on the Wii due to the fact that the console would still be living? Would we see a stronger virtual console?
C. Would we see more sleeper hits like Just Dance from Nintendo or third parties?
D. With Wii still alive, and the Wii U being demoted to being a premium Wii HD, would hardware sales have been higher?
E. How much higher would Nintendo software output have been if they weren't shackled with Wii U?

No - because it would have highlighted Nintendo's faults even more.

In 2016 - gamers of all kinds want to play in HD.

The likes of MK8, Smash, Bayo 2, etc could never been as good on the Wii as they were on WiiU.

Maybe Nintendo should have released the Wii U much earlier? Like when the name "Wii" was still fresh in everyone's minds and maybe when the Smartphone market haven't exploaded?

No, I don't think so. Though they should have supported it a little longer, after Skyward Sword there was virtually nothing for a whole year.

Also, The Wii U is my favourite console to date. Fantastic library of games. I am hoping that Nintendo is taking the failures of the U seriously so that NX can catch a much bigger audience.

Yes, even if it was just for software sales (by 2012 the sales of the console were dead, but any Nintendo game wouls sell well on a 100m userbase), it would have left more developing space for the WiiU, and maybe getting more power. But considering the idea of the WiiU and its support was flawed from the beginning, It would have caused an even shorter WiiU lifecycle.

I think they should have, yes.

Because then they would guarantee consumer trust for the next cycle. This way they lost it, so it will be interesting to see how it will affect early adopter sales of the the NX.

And to be honest, it would be best to tackle the next generation in equal conditions to it's rivals. It would be a good timing to catch up with them in terms of power and regain third party support for a full generation (by launching their new system at the same time as the others while having gained great consumer trust that Nintendo won't abandon it, much like Sony with the PS3). Mid-generation systems never work.

If anything maybe they should have released a mid-gen upgrade like the others have.

Hmmmmm its a hard question.From a bussiness viw, it probably would have sold more units and thus generated more profit for Nintendo, but at the same time it would reinforce the idea that Nintendo always has the worst hardware and never strive for power(Not that the Wii U solved that, it would just be worse).

Plus, the Wii U was needed for Nintendo to get a grasp on how to develop HD games.I think, all in all, that this failure was "good" for Nintendo, because it will make NX a better system.At least thats what I hope for.

Either Wii U should have released earlier, or yes they should have focused more on Wii as it still would have sold very well in the software department and would give them more time to work on the successor.

Look at Sony. Their long term support keeps the momentum. In last days of PS3 the last of us carried some of its momentum to PS4 launch. Or God of war 2 which contributed to PS3. Or last PS1 gran tourismo which carried out to PS2.

Nintendo dropped Wii support like a stone and that was on a well performing console, Nintendo then dropped Wii U support even quicker for obvious reasons. Personally I think Nintendo handle console transitions very badly, especially the way they have dropped the Wii U. That's one of the reasons I'm lukewarm to the NX.