The Wii is an underpowered system. It was never designed to compete with the Xbox 360 or PS3 on technical specs. The idea was to undercut them on cost, outdo them on innovation, and capture the casual gaming market that no company had ever really attempted woo.
It worked in spades.
However, 2.5 years later those specs are only getting more crusty, and Wii game developers are starting to hit the wall (like I did with my roommates Wiimote back in undergrad). Nintendo’s Shigeru Miyamoto has admitted that the Wii’s lack of processing power has limited the potential for innovation in game design.
This is the problem with the Wii. It was the same problem I had when they released it – where can it go? The that fact that it doesn’t output in 1080p is not the problem; graphics aren’t everything (I grew up on NES and Atari and still happily play them both). The issue is that complex and innovative game play elements often require more processing power, and the Wii is a weakling.
Nintendo will have to address this deficiency at some point, or they will fall behind on their biggest selling features – unique game play and innovation.