Pretty sure they are not talking DS, since after all who goes into a store and thinks "do I want a PS3 or a DS"? The DS may sell the most but its not at all in the same fight as the other consoles.
Incidentally even the DS hasn't made it seem like consoles are dying to handhelds. Even the Nintendo handhelds have yet to pass up the Playstation 1 much less the PS2. It's still pretty clear that the future is consoles (with handhelds staying the niche market they've been since the 80s).
Also I'm pretty sure they were talking PS3 vs 360 since they compete for games. Usually the Wii is done seperately (there are very very few PS3 or 360 games that are shared with the Wii) so Sony doesn't really care as much about being ahead of them.
If Sony can get MS out of the Market both Sony and Nintendo will have lucrative futures. Sony will have consolidated the HD market and pull much better numbers then this generation and Nintendo will keep at it with the casuals and pull good numbers at the low end (along with Sonys last gen system).
Either way the two HD console makers seem to care more about knocking each other out then whatever Nintendo does (and rightly so). The market for HD games is at least as big as the market for casual games, its just that the HD market is split while the casual market really isn't.
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