Nintendo needs to be an Apple (which it arguably already is), not a Sega. Keep the hardware software vertical integration. It's Nintendo's most valuable asset.
This is a Michael Dell "sell Apple and return the money to the investors" moment. Nintendo isn't the most profitable company in the world for a quarter and it's time to give up and start share cropping? Ridiculous.
It is completely viable to create an upgradable platform that does not obsolete itself by the time it is released - the problem is not technology itself, it is the console manufacturer management notion that it is a good idea to have planned obsoletion every 3 years or so to get people to buy new hardware.
Give me an upgradeable PS3 with an SSD and Steam (rather than the 10 times slower Bluray) - and tell me that it wont kill desktop gaming.
Nintendo, MS and Sony will be killed by mobile gaming - the latest Kal El pre-production silicon has a 12-core GPU and a 4-core CPU http://www.youtube.com/watch?v=eBvaDtshLY8&feature=playe...
Just a matter of time before Crysis 2 works on your big screen TV through mini HDMI - what remains to be figured out are the controllers
Customers already accept that they cannot play certain games (Crysis?) if their system is not upto mark. Windows 7 has the notion of a graphics "score" as well to figure out whether to turn on Aero.
The only reason why this is not done is forced obsoletion - the customer behavior has existed for a decade or more.
The Wii, X360 and the PS3 have been around for 5+ years, and will be around for at least 1-2 more. They've all sold a crapload of units. Remember all those articles about Nintendo selling a bazillion Wiis? They made truckloads of money.
Obsolete in 5-7 years is a pretty good product life time.