It sounds a bit like wishful thinking on the part of MS. The "wii bubble" may indeed burst, but Nintendo does have one thing going for them- price. I've been an avid console gamer since about 1989, and have owned and/or played nearly every machine since then. But I don't own a 360 nor a PS3. I think they're great machines and all, but I just haven't been willing to plunk down $400+ on a game console.
Don't get me wrong- I really intended to buy both. But I was initially spooked by the rumors of the very high failure rates of the 360 (and my brother had two, both died the old 'red ring of death'). Once they had that more or less licked, then they started their "Xbox Edition of the Month." Hmmm...what size is the hard drive this month? What color is the console? Does this one have HDMI? Which old Xbox games will or won't work on the 360? The main advantage of a console for me- stability & a machine that didn't needed to be fussed with- started to evaporate.
Sony seemed to have it together a bit better with the PS3, but pigs will fly before I spend $600 on a frickin' game machine!
Eventually the price has come down, but even Sony seems to be tinkering with the specs- some will play PS2 games thru software emulation, some thru hardware, some won't play PS2 games at all. A huge part of the success of the PS2, and a big reason I bought it, was that it was backward compatible. Early in the life of the PS2 when there weren't all that many games out I had 75 or 80 PSX games to play on it to tide me over.
So maybe Nintendo recognized the potential pitfalls to making the next generation of "Super Boxes" so cutting edge; price. $200-$250 is a lot more reasonable, especially to parents, than $400-$600.
Now that it appears that Blu-Ray is about to finish off HD-DVD, I may take the plunge and get a PS3 soon. Or maybe I won't, now that standalone BRD players have crossed the $400 threshold. I imagine it will depend on what games become available (a new KotOR game for the 360 or PS3 would get me off the fence, as would a good new Resident Evil game).