I don't think people are overreacting, I think you are misinterpreting the situation
I can't speak for the other people here but for me what makes the situation bad is the fact that the Wii has seen decreasing sales each year so far. And currently it is on track to sell maybe 2.5 million units this year, while PS2, GBA, PSX, etc. sold 3.5-4 million units each year.
This is not about a "war" between the Wii and the HD consoles It is just about the Wii's sales. There are two handhelds selling way better than the Wii and developers will rather go for the handhelds.
I'll just say it that way: The sales have dropped dramatically compared to 2007. If you really think that's not enough reason for Nintendo to worry, well that's fine with me. But if I was the head of a company and my products sales decreased each year I'd be worried, yeah.