Based on the rumors (touch screen, dual analogue sticks, sensor bar), my feeling is that Nintendo is attempting to take on several competitors all at once.
The 6" touch screen controller rumors scream to me that Nintendo wants to basically go head-to-head with iPad gaming. I think the idea here is to offer "casual" iPad-type games that can play on just the controller (no TV needed). The big hook is that the Project-Cafe controller will also offer physical controls (analogue sticks, buttons AND the touch screen), which is something that a lot of people want for iPad and iPhone games.
Then the system itself will likely be around the same power as a PS3. If the system can stream images to the 6" screen controller, that would allow Nintendo to compete head-to-head with Sony's NGP (so long as you stay at home of course).
Finally, as a home console connected to a HDTV, it could offer PS3-level graphics, but also have the 6" controller screen as a standard and included option. Nintendo is no stranger to trying to "tether" their portable system to their home system (remember the GBA-to-Gamecube cable?), but now, it wouldn't be an optional - and therefore poorly supported - peripheral.
The rumors of a sensor bar could be one of two things IMO. I COULD be a direct Kinect competitor, but I actually just think it'll be for Wii backwards compatibility. Wii sales might be dropping, but it was still a hugely popular console with many, many owners. I think it only makes sense that Project-Cafe will be backwards compatible. I think Nintendo will simply allow you to use your existing Wii controllers, which might also allow HD Project-Cafe games to use Wii controls if a developer still wants motion control. It's kind of like how you could still plug a Gamecube controller into the Wii and some Wii games even used that Gamecube controller.
My $0.02 anyway