Nintendo is competition. Yes, Grapically Nintendo can't compete. I think Nintendo made those comments as a strategic move. My reasoning is this, that way Microsoft and Sony wouldn't view Nintendo as a competitor. Problem is if Nintendo Wii continues to sell well and take a good portion of the market away from Sony and Microsoft, they will have no other choice but to view Nintendo as competition.
Graphically how much better can it get? I reckin not much. But, the motion sensing technology that Nintendo has created for gamers, the options are limitless. They have created a whole new world to explore.
Nintendo's new ingenious creation has set the standard of video gaming for the years to come(motion sensing technology). Who knows, with the successful US launch(still awaiting Europe's, Japan's, and Australia's launches), Nintendo may rain supreme again.