Umm, i'm talking about size of developer, that is the number of employees they have in their development studios and number of games they develop every year.  That is different than the amount of copies of games they sell or how much revenue and profit they make.

Sony technically has more studios and more total studio employees than Nintendo does.   Nintendo easily sells the most software but SCEWWS  (Sony Computer Entertainment World Wide Studios) is the larger 1st party development team.

If you look at my original post I did say "most", to allow for Sony and other huge publishers who own numerous development houses. Also, I was commenting on Avinash claiming that Nintendo was a small developer, which is totally bogus. First, they are a publisher who has numerous internal development houses. Second, they are far from small, however you look at it.

Alright today Microsoft pretty much confirmed Nintendo is working on next generation projects. How did they do that? Microsoft confirmed that they are sticking to their 4 year life cycle and releasing the next X-Box for fall 2010. With a new X-Box on its way you know Nintendo has their next console well under way. This next console will launch in 2011 if we follow Nintendo's 5 year life cycle.

Next generation games will cost way more then current Wii games to make and we know Nintendo likes to spend a couple years preparing their next generation titles. With that in mind I bet you anything at least three of Nintendo's internal studios are hard at work on Wii2 projects or they are about to be hard at work on Wii2 games!

@ Joel

MS is doing a 5 year plan. They released 360 in 2005.

If you're saying that Microsoft know what Nintendo are doing you are very much mistakened. 

However it's common knowledge that Nintendo are ALWAYS working on new hardware. Just a couple of weeks ago Iwata confirmed that Nintendo had a new portable ready for launch in the last 3 years but decided against launching it, my guess is they were going to continue the three pillar strategy but with the DS selling as well as it did there was really no longer a need for another GameBoy.

So yes Nintendo's hardware teams are working on the next system but Iwata also stated it was too early to tell if the next console would be a Wii2-like console or a new disruptive product. Obviously they have many ideas floating around still.

I'd like to also address the software side of what you said.. In 2004 Iwata confirmed Nintendo were at work on the Revolution and that internal software development was underway. So 2 years before launch they were most likely designing what would become the Wii Series of titles, Metroid Prime 3: Corruption, The Legend of Zelda: Twilight Princess, Excite Truck and Super Mario Galaxy. Let's take a look at which teams Nintendo actually have free..

2009

• EAD2 - Wii Sports Resort
• EAD3 - The Legend of Zelda: Spirit Tracks
• EAD4 - New Super Mario Bros. Wii
• EAD5 - Wii Fit Plus
  
• SPD PG 1 - WarioWare: DIY
• SPD PG 2 - Puzzle Project
• SPD PG 2 - Sin and Punishment 2
• SPD PG 3 - Punch-Out!!
• SPD PG 3 - ExciteBots: Trick Racing
• SPD PG 4 - Delivery Channel

• Intelligent Systems - WarioWare: Snapped!
• Intelligent Systems - Dragon Quest
• NST - Mario vs Donkey Kong: Mini's March Again
• Retro Studios - Metroid Prime Trilogy 
• Retro Studios (supporting role) - Red Steel 2

• AlphaDream - Mario & Luigi: Bowser's Inside Story
• Ambrella - New Title?
• Camelot - New Play Control: Mario Power Tennis
• Game Freak - Pokemon Heart Gold/Soul Silver
• Genius Sonority - New Title (Original Title)
• Monster Games - ExciteBots: Trick Racing
• Next Level Games - Punch-Out!!
• Next Level Games - Jungle Speed
• Skip Ltd. - Art Style: SOMNIUM
• Skip Ltd. - Art Style: PiCOPiCT
• Skip Ltd. - Art Style: MANY NEW TITLES
• Skip Ltd. - New Play Control: Chibi-Robo
• Treasure - Sin and Punishment 2

2010

• EAD1 - Pikmin 3
• EAD2 - Wii Vitality
• EAD Tokyo - Super Mario Galaxy 2
• SPD PG 1 - Metroid: Other M

• Brownie Brown - DSi RPG
• Intelligent Systems - Square-Enix partnership games
• Monolith Soft - Soma Bringer 2
• Monolith Soft - Monado: Beginning of the world
• NST - Unannounced Wii title
• Retro Studios - Unannounced Wii title

• Artoon - Unannounced Platformer Title
• Camelot - Golden Sun DS
• Creatures Inc. - Unannounced Pokemon Ranger Title
• HAL Laboratory - Unnanounced Kirby DSi title
• HAL Laboratory - Unannounced Wii title?
• Project M - Metroid: Other M

A little bit of guess work here and there but essentially no team at Nintendo will be free to even think about next generation hardware until late 2010/early 2011. The Zelda team probably won't be finished Zelda Wii until mid 2011. 

So basically the earliest I can see new Nintendo hardware hitting would be Q4 2012 and it could very well come then if things fall that way.. 2011 is just too early and I see a new Nintendo portable hitting in 2011 so perhaps a two year gap like DS -> Wii is more feasible and we'll see the next Nintendo home console in 2013. It's all going to depend on software sales and the ability for the developers to continue to create brand new experiences from the current hardware. 

So in summary, Microsoft knows as much as we do when it comes to Nintendo's plans and basically the Wii 2 won't be coming in 2011. That is all. 

"As you know, a lot of people in this industry believe that the life cycle for consoles should be longer than five years. However, when it comes to the platform cycle, Nintendo has different opinions from the other companies. I think we have a different criteria about when to shift to a new platform. Technology companies would tend to focus on a technology roadmap about when certain technologies will be available at a given cost. Then they lay out their plan to make a certain kind of hardware. That’s how PC makers decide how to make PCs. With Nintendo, developers like [Shigeru] Miyamoto decide. As long as they are comfortable with the current technology’s ability to deliver meaningful surprises to the users, we don’t need new hardware. However, when they start demanding something new, when they see the existing hardware can’t provide what they need, then that is when we decide to launch the new hardware. As for timing, it may be three years from now, five years from now or eight years from now." - Iwata

I thought it was already confirmed that Project Sora wasn't working on Smash Bros.?

1. All three hardware console makers are working on next gen project. That's what their R&D departments are for.

2. Would this also confirm that Sony is releasing their next console in 2011?

3. If not, why would Nintendo have 5 year life cycle for Wii while it's selling well and making money?

The leap from the MS rumor to the conlusion is beyond me.

I think your math is off. MS would have a 5-year lifecycle if the new system is entirely new and arrives in 2010. They launched the 360 in 2005, a year ahead of Ninty and Sony.