It wasn't a toxic environment, but it was an opportunity cost environment. Development wasn't super expensive, but there were no benchmarks to go off to make games that would sell. Carnival Games sold great, but the other 40 games like it didn't. Just Dance did, the others didn't. Zak and Wiki didn't sell, Mad World didn't, Boom Blox didn't, Little Kings Story didn't, etc etc.
You could turn a profit with 300k on some titles, sure, but getting 300k was a lot harder than you're making it out to be. And, for every Wii title in development, you're using resources that could be applied to games that you think are more sure bets to sell. So, there was a big opportunity cost in Wii development.
All those companies, all those thousands of people, all those publishers who tried to battle on the Wii, and only Just Dance and Guitar Hero truly broke out.
Sorry, continuing development on the Wii was not going to solve for the current climate.