Different markets, different appeal, though. Sony never could compete with Wii on the terms set by Wii, as that would run counter to Sony's CE business. Nintendo has effectively crafted its own market, as it said it would. Which is pretty awesome in its own right, but I think talking about the situation as if it was somehow an even race, or a match in the same division even, is a bit silly.
What are the Wii's terms though, and what is Sony's CE business? Not to mention despite different markets and different appeals, the Wii still comes out on top in sales, in every single market, and even leads the PS3 in attach rate (last I checked), both the most telling indicators of a console's health?
Anyhow, Nintendo crafting their own market is due to their own business acumen more than anything else - that Sony and Microsoft couldn't play ball with Nintendo isn't Nintendo's problem - far from it.
And it is an even race: the race is to sell consoles (and games), and Nintendo has done so - whether or not it is due to inferior hardware in lieu of a cheaper price point or not is another issue (it's not like this is the first time inferior hardware has won the console war anyhow). Where Nintendo has the price point advantage, both the Xbox 360 and the PS3 have the hardware performance advantage. And if you live where I do (Hong Kong), you would be surprised - no - shocked, to see that the Wii is outselling both the 360 and the PS3, despite the hardware costing more than the "true HD" consoles. That's right: Nintendo has yet to officially launch the Wii here, yet you go to video game malls and you see the Wii outselling both the PS3 (you can still buy the 60GB here, brand new!) and the 360. To wit:
PS3 40GB: 2,680HKD
PS3 80GB: 3,580HKD
360 Arcade: 1,999HKD
360 Value: 2,499HKD
360 20GB: 2,799HKD
360 Elite: 3,599HKD
Wii Japanese: 2,399-2,899HKD
Wii US: 3,299-3,799HKD*
* lack of official launch means prices fluctuate depending on market demand
1USD = 7.78HKD
At the end of the day, it doesn't matter whether or not one console is more powerful than the other, or that one console is cheaper than the other. What matters (not to us the consumers, but to corporate brass who protect their corporations' bottom lines) is that they make generate enough revenue to make a profit. In that regard, the Wii is performing much better than the other two manufacturers, and I think both Sony and Microsoft wouldn't mind for a second to trade their positions with Nintendo in terms of growth, profit, and perhaps more importantly, marketshare and mindshare.