Of course a r300 or r400 wouldn't have matched the xenos and the r400 could have actualy been more powerfull in the long run than what went into the ps3. It was nintendos bad that they didn't take advantage of the years of tech progress since the gamecube was made.
Do you honestly believe that a more powerful GPU would have moved more hardware? I think N did the right thing. If they pay $10 for the GPU instead of $30 (whatever the real numbers are) that's a lot of extra profit they make.