Apple is already in danger of making the 3DS (and other handhelds like the PSP) extinct. The iPod Touch is a serious threat to every other handheld "console". Yet Nintendo and Sony both (in separate ways) continue alienating their fans.
The A5 processor has (allegedly) 9 times the graphics power of the A4, which is already capable of playing some pretty decent games, even 3D games (eg Infinity Blade, Dungeon Defender, Rage).
Just how long do you think it'll before Apple makes the Apple TV a gaming console?
Now this is a fundamentally different model than the touch model their current devices have. The importance of this can't be overstated but Apple has an huge user base and all the distribution infrastructure it needs for this.
Nintendo has proven that you don't need bleeding edge graphics to sell consoles (like Microsoft and Sony provide). There is (IMHO) absolutely a market for Apple to extend the iTunes ecosystem into console gaming.