While all three markets appeal to certain niches that the others do not (or at least, not so much), there is still a large number of gamers who will be drawn to what each system has to offer. Even if these gamers buy 2 or 3 systems, there is a limit to the number of games a person can play. Each day spent playing a 360 game means one less day playing a Wii game (or vice versa), and in all likelihood fewer games sold for each system than if the others did not exist.
More importantly, they are competing for developers. The developers have limited resources. Two years ago, Nintendo couldn't successfully compete for third party resources, and as such they got a bunch of shovel ware games. As the Wii's success became apparant, some third parties claimed to be shifting their best development teams to Wii projects - meaning that they would no longer be working on 360/PS3 games.
Lastly, look at how stores such as Target and WalMart display video games and consoles. They are put together in the same aisle, with very limited shelf space. Where the PS2 might have had 2 or 3 cases of games displayed to the XB and GCN's 1, now the numbers are reversed. Wii and 360 (in the US, anyway) are being displayed more prominantly and since most stores have not expanded their gaming section, that means Sony has lost shelf space, which means it has fewer games on shelves, which will hurt their sales.