I would have thought that most companies are pursuing a mixture of both short term profit and longer term stability. Is there any reason to doubt that the are?

The lack of stability in the market?

But no, I don't have evidence that video game companies in particular are guilty of lack of foresight ... although I think that if your theory (that that was their reason for being leery of the Wii) was correct, then there'd have been a lot fewer PS2 titles from those self-same publishers, unless you have an explanation for why they would so recently have made this realization. 

What?..And yet Devs continue to use the unreal engine to this day...Yeah there "Irrelevant" alright...

Well I guess the generation changeover was something that really hurt. The number of developers slowly increased over the lifetime of the last generation and they suddenly found overall software revenue was too low to justify the quantity studios/developers they had. Though im not sure how better planning would have averted this situation.

With the PS2 there were no obvious alternatives, there was no 2nd choice for development. The alternative of not developing for the PS2 was worse than the choice to develop for the PS2.

The market ideal is pretty much something like Xbox Live Arcade. A limited number of development 'slots' for release, rising revenue and fewer I.Ps/releases to manage. This isn't the ideal for consumers, this is the ideal for big publishers but not smaller developers.

To a larger publisher, the extra cost of development for the HD games is both a pro and a con. The additional cost of entry to the market pretty much ensures that they have less competition from those unable to put up the dough to enter or stomach the risk. Its also easier for them to market, manage and control their I.P. with fewer releases. Additionally it secures them more favourable terms from retailers as they don't have to compete for shelf space to keep their games available for sale.

Even though some genres like WRPGs seem saturated, a publisher which releases something like Gears of War knows that there are only a couple of real competitors competing for the same market. Big shooter fans only really had Gears of War, Left 4 Dead and Call of Duty 5 as their big options for the last holiday season on the Xbox 360. In a more open market there would be more similar competing products.

Well my sources tell me that Marc Rein is a doodoohead and a jerk.

I think people seriously need to stop rationalizing what Mark Rein says. Not that he isn't a legitimate big name in this modern type of industry, but he's in a way just having fun with you people. Stop defending his rationale, sure there's truth in it, but it's largely a form of joke.