But as I understand it, Nintendo has said that since they don't have the capital of Microsoft or Sony, they aren't going to even try to throw massive resources into a 360 or PS3-like machine--super powerful graphics, HD display, ect. It's not finacially viable for a company whose ONLY product is their gaming hardware and software.
Sony has its other electronics and Microsoft has Windows and Billions of dollars to fall back on. If Nintendo, on the other hand, were to go all out and make a Super Console, and then watch it fail against the others, they'd have a huge financial failure. But innovating with the Wii gives them a unique product so it's an "and" choice instead of an "or" choice, makes it more affordable, and expands the total population of gamers altogether by attracting people who wouldn't normally play.
Does that make sense?