What does it really mean?
It really doesn't mean much unless you frequent GAF and are able to make ridiculous conclusions about an entire industry based on one or two weeks of sales in a different country with a changing cultural outlook on gaming. However, it could be a huge sign of horrible things to come, if you believe this lot *looking around this thread*.
Was Nintendo right (Japan doesn't want hardcore games)?
Uh...is Galaxy hardcore? Sorry to answer a question with a question, but is it hardcore ENOUGH? Hardcore in Japan is different than here in the US. Graphics, maybe, but monster collecting, RPGs, and obscure anime seems to define hardcore over there. Maybe this is a game that really doesn't have an audience anymore? It's not really casual like NSMB was, it doesn't really have the appeal to the Japanese hardcore like Monster Hunter or DQ does. I think perhaps we had a bit too much faith in this title.
Or was it a self-fulfilling prophecy (They want hardcore games but not Mario, not on a casual system)?
I kinda put the answer in the question, I think. Is it possible that Nintendo has simply just lost the hardcore mindshare over there? I know, more answering questions with questions, but is this a failure of marketing? A failure to "know your audience?" Or did they create the audience by all of their 'casual' posturing?
Or is console gaming dead? (Handhelds ftmfw)?
No. This is simply not a conclusion we can make in the same breath that we acknowledge that the Wii is pacing ahead of the PS2. It wants to die, and console makers want to kill it, but it's not dead. It's just a bad model for the console maker to make money, at least for the first couple years. Right? Maybe they're doing this on purpose!
How is this relevant to 3rd parties, and how do they respond? Are they part of the problem?
It's kinda relevant, but in a good way. This clears away the notion that its impossible to compete on Nintendo products. They are free to go nutzo if they want. That, and that they had better be careful what money they spend. And oh yes, they're partially to blame, but not because they made a bad business decision. But they HAVE most definitely helped create the image of casual gaming only (with the help of Nintendo, for sure).
And finally, what now? Can we draw ridiculously morbid conclusions about the entire industry because of this?
Of course we can make ridiculous conclusions. See, this thread.