1) Don't make a profit from the console. Just sell it at production cost (no gain, no loss)
2) Incorporate a 2Ghz or better Power PC Equivalent Processor. 729 is not enough. This isn't 2001.
3) Include a GeForce 7 equivalent graphics adapter (or equal implementation from Ati)
1+2+3 = Console with the BEST Gameplay and capable of 720p. Total cost around 300$ (Heck Microsoft sells 360 at 300$ with way better specs). Make the console a little bigger, noone will mind.
If this happened Wii Sales = 6x PS3 sales instead of = 2x PS3 sales which is the current situation.
4) Include online gaming out of the box (at release)
If these 4 were true, there wouldn't even have been a console war to begin with