Retailers would rather have an in demand product during holiday or promotional periods such as product launches. People are more willing to spend money on other stuff during these times. So while they may come for the Wii's they may buy other merchandise at the same time. 

Other people have already stated it. Holiday = greatest sales time of the year. Yes, it doesn't really make a lot of sense, sell now, sell later, same thing right? But when you factor in the attach rates NOW and at Holiday time, it's greater. More sales, better for business, and it looks more impressive. I couldn't care less if they're stockpiling or not, I got mine. :P

It's better to have sales year round than oversupply and watch demand go down.

I second that. 

I think the getting ready for the holidays idea largely explains the slower Wii sales.  The 360 sold about 3 million last holiday so the Nintendo needs to be ready to do 5-6 million.  Some analyst recently said Nintendo is revving up to 1.5 million Wiis a month.  If the holidays are considered Nov/Dec with Sept/Oct as full sales months then Nintendo has 4 months including May to stock 2-3 million Wiis for the end of the year.  That would mean Nintendo is taking 500k or so from 1.2-1.4 million Wiis which leaves us  almost exactly with the current estimated sales.

Others have already touched on the main reasons why to hold back stock for Christmas. Another reasons though is whoever has the best selling system gets lots of favorable free mass market media attention.  That may not be a huge deal in the long run but I do know several cousins and such whose only knowledge about video games last Christmas was that some system with some new controller called the Nintendo Wii was outselling the Sony Playstation 3.  Should the Xbox360 beat the Wii this Christmas that will make up a large portion of what many video game buyers know.  Again I don't know how big that is market wise, but I imagine status conscious execs at Nintendo and MS are more worried about such things than is actually justifiable.

Where is the evidence to support this theory? 

When the PS2 was in short supply, did people run out and buy the Dreamcast? 

It's not as crazy as it might sound, Joe. I don't have any evidence to support this theory (other than logic), but I can certainly imagine a parent getting so frustrated trying to find System (X) for their kid that they just give up and get him System (Y) instead. To point, this would be a problem that would occur most often at Christmas, when parents are doing most of the buying, and they feel they must get junior a present by December 25th, or else.

Again, no tangible evidence in my bag, but it does seem logical.  

I not saying it doesn't happen, but the only analog I can find is when the PS2 was in short supply. If the theory holds that a sold out console drives people to buy other systems, then surely we should see a bump in Dreamcast sales when the PS2 was sold out. But in fact, it looks like there was no change at all in DC sales.

So while this effect may happen, it may not be large enough to make any difference in overall sales.  

It's also important to note that the PS2 shortages weren't nearly what a no-extra-supply Wii would be like. We're probably looking at 6 Million Wiis sold over the November-December area: if they only have the 3 million produced during that time frame, they'd be 3 million or so down. In PS2's hayday, they could be hard to find at Christmas, but they certainly weren't leaving 50 percent (or more) of the potential buyers without a system. 

Actually, the PS2 shortages were much worse. Take a look at the launch aligned sales. Nintendo has produced almost 2.5x as many consoles in the same amount of time compared to the PS2.