I think the elephant in the room is that the WiiU is a piss-weak machine unless you compare it only with the Wii and PS360. The discussion seems to have been directed along this line (perhaps subconsciously) as kind of diversion from the fact that for a mains powered console - ostensibly trying to attract core gamers - it quite amazingly struggles to stand nose to nose with a core gamer system launched seven years earlier.
I don't have a problem with Nintendo releasing weak and outdated hardware to try and make money. I just think it's odd that so many seem to deny this is what Nintendo are doing, or seek to justify it beyond Nintendo profit motives.
I think it's also worth saying that it's not a binary "WiiU" or "PS4720" situation. Nintendo could have included another CPU core, or better CPU cores (break the bank on a behemoth like Bobcat), or used DDR3 1866 memory, or added additional shaders (the GPU is not a big chip by console standards even with the embedded memory) or gone batshit-insane-mega-power crazy and used a 6 cm fan instead of a 5 cm fan and pushed the CPU clock all the way up to a dizzying 1.3 gHz. Nintendo didn't because they - as a business - do not value powerful hardware. They don't think it brings in the returns necessary to justify itself. This isn't a recent things either - look at the SNES (incredibly weak CPU), the N64 (hardware Sega turned down two years earlier) or even the Gamecube (well below the Xbox). Even before they made the Wii / WiiU Nintendo knew hardware had to pay for itself and that R&D costs shouldn't commit you to a platform for a decade to make your money back.
Nintendo are right to do what they think they should, but it doesn't mean that the hardware isn't .... what it is.
For me the sad part is that I don't think that cost explains the lacking of the system.
If you look at the overall picture, they have used 189 mm^2 (33 for the CPU and 156 for the GPU) of silicon. It is not too shaby, not too mention that the CPU seems to use EDRAM and that the GPU includes Edram, so it is not the cheapest process available.
What I think is disheartening is that the enhanced broadway core might be in the same ballpark as IBM PPC 470s which are more modern CPU designs. May they have chosen those CPU they may have been able to produce them on a possibly cheaper process and wafers.
Those CPU are according to IBM own number ~4mm^2 on their 45nm process, it could be less on TSMC process. They may have give up on some cache but I'm not sure about the implication on perfs as those processors are "better" (wider, more advance out of order execution, etc.).
Those CPU also use an interconnect fabric that make the connection of PCI type of device possible (from IBM paper).
To me it sounds like those CPU cores along with the matching interconnect could have allowed Nintendo to design a SOC without having to spend humongous amounts or R&D, could be wrong though but people like you or Exophase would have a better opinion on the matter.
On the other side you have the GPU significantly bigger than Redwood (104mm^2) or Turks (118mm^2). I think it is not pushing too far to assume that Nintendo could have put both one quad core based on PPC 470s and a redwood/Turks within a chip not bigger than the GPU they ended up using. It would have been produced at using TSMC 40 nm process.
I think that is not pushing too far either to assume that going with a 128 bit bus to even DDR3-1600 may have been cheaper than using two chips on more expansive process, having a bigger silicon budget, using a MCM.
The whole thing is that I've no issue with Nintendo business model and their will to not engage the fight on specs and largely subsidize their systems. I've an issue with them closing them selves some part of the market based on what seems to be bad design choices.
I think that Nintendo could have been king of the hill for one year and that would not have hurted them in anyway, quiet the contrary . It may also have result in more high studio studio jumping on board. EA for example seems it is going FB 2 engine for more franchises going forward and it seems that it won't be ported to the WiiU.
Really as I see it cost is not the issue, the issue is sucky design. Like I said months ago and Mize concurred lately, they should not longer design Hardware them selves and move to for example Google practices on the matter.
I believe that the WiiU (a superior one on top of it) could have launched at 299$.
I think they should have passed on 2 SKUs and have a better basic SKU.
Looking at some early game troubles I think that they should have embark a bit more flash reserved for caching (8 more GB)