Being so dependent on 1st party software, they opted to play on their strengths. It was a good move, and sales reflect this. Can we prove in hindsight that they wouldn't have sold even more if their games had better visual fidelity? No, but it's only speculation whichever way one looks at it. 

All in all, I think they chose right. Sony and MS were always about allowing outside talent to develop for offered platforms - this has the added advantage of keeping software development costs out of house, as opposed to Nintendo's case. There's a higher initial hardware development, purchase, and assembly cost, but this loss deflates quickly when you choose more or less PC parts from the mass-market manufacturers, allowing prices to go down, or profits to go up.

With the looming hardware crisis, in addition to penis-measuring contests by way of tariffs in mind though, most of the above is irrelevant and everyone is equally screwed for a long time.

Switch 2 definitely strikes the right balance, using a mix of current and older tech to make respectable looking games. Increased third party support, supports that at least. The fact that many games you would need to see side by side now to tell the difference in the first place really emphasises that point too. It's completely different from the switch 1 era where you could tell regardless.

Yes - for two reasons:

(1).The higher the fidelity the graphics, the more expensive the development costs for games. Cost is the main restriction around graphics (IMO).
(2) Not being able to port games from other platforms (or just them not looking as good) means that Nintendo has a different game library. Which means "Nintendo as a second console"

Yes, switching to a single portable device was absolutely the right move for them, and that necessitates exiting the graphics arms race. It's Nintendo's first party that matters and for the most part they don't need high-end power. Mario Kart 8 still looks great.

I would have preferred a higher end device myself and would have got more third party on it if they did, but what's best for Nintendo isn't pushing power. They never had success when trying to compete on power with PlayStation.

Harmonizing their game development studios to one platform was the right move. Just a stronger game lineup since it isnt split. They needed this because their third party support is always behind.

I think yes and especially now that they decided to take over the portable market, they are doing very well for themselves.
Their core first party games are of the type that don't require the most advanced graphics, the art style does not need it.
And in the long run, I just can't see Nintendo being the go-to console for certain groups, like the online shooter community, dudebros, and cinematic story game fans such as me.

Had Nintendo stuck with chasing the highest graphics, there would’ve been no $250USD Wii, there would have been no $125USD DS Lite, and chances are there would’ve never been a Nintendo Switch as they would’ve been outcompeted in the hardware industry— just recall how hard they struggled to maintain a steady release of titles during the early years of HD (2011-2013). They would’ve stood no chance during the XB360/PS3 generations.

The “Blue Ocean Strategy” of Yokoi/Iwata was (and still is) a major component in Nintendo’s success. This isn’t a false dichotomy IMO but an appropriate attribution of cause to effect.

Also, why is Bleeding Edge (2000) the tagged game on this forum? I just noticed this. Is this an error? Or is there actually relevancy here? I’m now curious.

It worked out. I hated it. I was playing like PS3 80% vs Wii 20%.

Yes.
Keep in mind N64 and GameCube were part of the graphics race but had quirks. N64's storage size for games was severely limited by cartridges. GameCube was somewhat limited by the miniDVD. I don't think Wii being around as powerful as a 360 and PS3 would've done enough if it didn't have the casual games. And even if it had the casual games, it would be an unnecessary cost.
And with the hybrid nature of Switch and Switch 2, you simply can't have them as powerful as Xbox and PlayStation.
We might win as gamers if Nintendo had powerful home consoles and handhelds, but it would not be the right business decision for Nintendo, I think. Nintendo would still have quirks the way they deal with third-parties and the better specs might not be enough to get almost all the multiplats the competition gets.