Some of the reasoning in this thread is amazing....
All console makers have one goal in mind: Sell consoles, and sell games and peripherals for those consoles. Now game developers don't have endless resources, so they are only making games for a subset of the total platforms available. This creates the following simplified effect, logically:
- Console makers create new consoles in order to keep sales going.
- Game makers are encouraged by the console makers to build new games for the latest consoles, both in the form of development resources and of course to ensure long-term sales of their games by building for consoles which will continue to have a large enough (active) installed base during the shelf life of the game.
- Customers see little choice but to buy new consoles at some point, given their desire for new games and/or new technology in the new consoles offering a perceived improvement (either realised or potential).
Now obviously new consoles have to offer improvements over the previous generation in order to sell themselves. I would say this comes in the form of various factors such as more processing power, better audio, better visual quality, but can also be improved or revised controller technology. I'd even class network connectivity and multiplayer options as another key selling point for a modern console. I am willing to accept that very very few gamers will be interested in a console just for improved audio qualities, so the key factors encouraging sales are graphics, realism (due to more processing power or due to being immersed in multiplayer with ever more opponents/options/friends), and improved controllers (which I guess is also about realism in the end).
To me this makes Nintendo's choice just as legitimate in the console market as the choice of Sony/Microsoft. While the latter two chose to aim for HD graphics, Nintendo clearly decided that the "DVD quality" SDTV would cope with another generation and took the controller as their main improvement. Only time will tell which gamble pays off.
So then we come to graphics. I don't see graphics as the sole factor, I see a combination of all 4 selling-points as being vital to the success of a console platform - and that combination will always be technology limited, so it's all about the best compromise. Oh, and lets not forget about the need for software which can actually realise the potential of the platform, obviously.