With recent news that the Wii supports MPEG layer 3(mp3) format audio, in addition to audio CDs, it came to my attention that the lack of DVD playback in the Wii was strictly due to a software decision. The hardware to support it, however, suffers from no limitations to make this happen.
So, the question is, why not include it if it's technically possible to do so?
As stated by Perrin Kaplan and several other representatives, to include DVD playback would raise the overall cost to the consumer. This isn't exactly a stretch. In fact, it would also cost Nintendo a bundle to license the MPEG2 codec required to decode DVD frames.
In a recent interview, Iwata indicated that the Wii's operating system will continue to be updated after launch. Not only is this entirely plausible, but to expand on this, it's also possible that additions to the software could be made.
The third piece to this puzzle is the fact that there are widely used codecs that are released under GPL licenses, allowing them to be open and used freely.
Codecs such as XviD, paired with an MPEG2 wrapper, could enable playback of DVDs and DviX/XviD encoded files. This would open up the Wii to the market of those who keep all of their DVDs archived on a hard drive, allowing them to play them on a box smaller than their DVD player, while retaining all functionality and gaining some in the process.