I realize their choice of control scheme limits the system, but it was the only thing they could do to try and make the console more appealing to thing non-gamers.
They lost the hardcore crowd during the N64/Gamecube generations. They know that most males under 18 are used to Sony or Microsoft.
The seeds they sowed in the 8 and 16 bit generations of gaming were reaching their end. The roots only go so deep, and a lot of the people who were raised on the NES and Super NES "grew up" and moved on from gaming.
They were detached from the current youth, and they tried so hard to appeal to the kids. (which back in the day were your target audience not the young adults) That the older crowd abandoned them due their neglect of more mature titles to keep with the times.
The wii was a desperate attempt to regain some ground, they knew the only way they could get back into the game was to re-appeal to those who stood by them so long ago. But how do you get someone who hasn't touched a console in 10 years to rekindle their old past time when they're overwhelmed by the complexity of new technologies?
By making a controller that felt simple again, hence the wii-mote. It seems gimmicky to us but to their target audience it was just what they needed.
Nintendo also had a VERY limited budget on which to make the Wii. They lost millions of dollars due to the back to back failures of the n64 and the game cube. So the wii-mote was the most affordable answer they had.
The reason for no Hard Drive? Too expensive for them to mass produce.
The reason for no HD? Their target area (Japan) is still predominantly using standard definition televisions.
They figured the technophiles would go after the ps3 or 360 over the wii anyway due to their impressive benchmark specs. So as far as they know the only people who would be concerned with HD were rooting for the other teams anyway.
They at least realize, finally, that the internet exists in almost every household, and added built in wi-fi. That at least we can be thankful for. Also we don't have to pay them to use it. (Micro soft could take a lesson from that.)
By the time when you can upgrade your 360 or ps3 to fit the new wave of technology (which I doubt will be possible.) The successor to the wii will already be out ,and will be able to keep pace with the upgraded ps3 and xbox. And the fact that there is only falsh memory card to store your info on makes it simple to carry your VC games over from wii to the new system.
As far as I know the ps3 and the 360 are only able to upgrade their firmware and hard drives. I don't think you can send it back to Sony/Micro Soft and have them replace the Graphics chip with an updated model and just send it back. Wouldn't they have to change the entire architecture thus requiring an entirely new board?
If so then why not just but a new console altogether,instead of just an upgraded graphics card when both are going to require pretty much a whole new system to accommodate the new technology?