Doesn't seem to me like they're really doing the right thing to reclaim the hardcore market. "Just a notch" above 360 won't cut it; the gap between Project Cafe and the PS720 should be comparable to the gap between the PSP and the Xbox in order for it to get respectable ports later on.
Unless Nintendo is trying to emulate an Apple-ish model in the console industry and starts releasing "optional" hardware upgrades every three years? The controller, if pulled off right, could be a killer piece of technology for the casual and hardcore alike. Once you've bought the kick-ass (but expensive) controller, you can choose to upgrade the box if you're a core gamer.
They could even have an equivalent to high and low settings like the PC platform.
Here's a possible roadmap for the next five years;
Late 2011 - Early to mid 2012: Nintendo releases Project Cafe with the new controller as the main hook at a price range of $250-300. The hardware is efficient, clearly above PS360 in a majority of areas and cheap to manufacture. Casuals are wowed by non-gamer stuff while enthusiasts enjoy a noticeable increase in image quality and a cool new control method. Core gamers are attracted by the "best" (console) versions of blockbuster multi-platform titles at a relatively low price. Nintendo fans eat up the Nintendo franchises.
Late 2012 - 2013: Microsoft and Sony launch their next home consoles. Meanwhile, Project Cafe has gained a healthy install base of roughly 30M. Nintendo has benefited from large profit margins on PC since launch, with the 3DS doing its thing on the handheld front.
If the PS720 are only a small upgrade from their predecessors with emphasis on motion controls and the gap between them and Project Cafe is small enough for easy porting, Nintendo keeps on rolling in the dough until next-next-generation.
If the PS720 are expensive monster machines that leapfrog PC, then...
Late 2014 - 2015: Nintendo releases Project Cafe V2 with hardware that is roughly on par with the PS720. Manufacturing costs have gone down and the system can now get ports of high-end titles. Only the box is released as it has full compatibility with the existing kick-ass controller. Games have two compatibility settings; low settings on PCV1 and high on PCV2. Casuals can choose to keep the older model while the hardcore upgrade.
2016-2017: PCV1 is slowly phased out in favor of PCV2 because of lower manufacturing costs. Nintendo is preparing to announce its next system.
