While Sony is currently outselling Nintendo, the overall market is weak

Worldwide current sales to date figures are also interesting: the Wii has sold almost 50 million worldwide. The 360 has 30 million and the PS3 just over 21 million. Even if the PS3 outsells Nintendo for a few months, Nintendo does not have much to worry about. The Xbox 360 was sold at a loss to Microsoft, at least initially. The same has been said about the PS3 and Sony. On the other hand, Nintendo has made some profit off of each Wii sold.

There are reports that the number of games sold per console favors the 360 and PS3 over the Wii. That is likely true, given the more "casual gamer" nature of the majority of Wii owners.

The 360 and the PS3 have more "hardcore" games released, which usually means first or third person shooter games. Those consoles support HD graphics, which makes the games quite sexy-looking. But, the variety of games is not as large. The availability of small, downloadable games is not high. In addition, the 360 has an extremely robust multiplayer system, although it costs $50+ a year to access online content. The high-quality graphics also make games much more expensive to develop.

The Wii on the other hand, has been criticized for a number of reasons, such as being only for casual gamers, having an awkward control scheme, having a lot of poorly rated games released, not enough (and robust enough multiplayer) games, and not having HD graphics. 

Because the Wii does not support HD graphics, it is cheaper to develop for, which makes it easier and less risky to make games for. Additionally, since the console was significantly cheaper (by at least $100) than it's rivals (and included a game), it was more accessible to more people. The new control scheme also increased it's appeal. Thus, it was no surpise that the Wii turned out to be highly popular and that many games were quickly produced to take advantage of this popularity.

Anyone who has played Resident Evil 4 or Metroid Prime 3 on the Wii would know that the Wii's control scheme works extremely well for first / third person shooter games.

Nintendo realized that most people do not care if the graphics are realistic, they want their games to be fun and interesting. By making a console that's easier and cheaper to develop for, theoretically, developers can spend more time devoted to perfecting gameplay and story instead of polishing graphics.

Nintendo has become a powerful platform for independant, smaller developers to release their software through the WiiWare program, which has been successful. In addition, Nintendo also has a the rights to the back catalogs of many systems, including the Atari 2600 and 5200, the Sega Genesis and Master System, NEOGEO, TurboGrafix 16, arcade games, and Commodore 64, as well as it's own older consoles (NES, SNES, N64, Game Cube). There are currently roughly 300 of these games available in the US, starting at $5.

There are a number of reasons not to count Nintendo out:

- Nintendo has several highly-anticipated titles coming up: new Zelda, Mario, Metroid and other favorite franchises. 

- Some games for the GameCube are being rereleased with translations to the Wii's control scheme at lower prices.

- The new Wii Motion Plus, which adds much more precision to the controller will be released this summer. However, it will cost ~$50 and games must be programmed specifically to take advantage of it's capabilities, so it will not work with older games.

- It's console remains quite reasonably priced. ($150 less than the PS3 and $50 more than the cheapest, cripled 360)

- Innovative new perhipherals (like the Wii Balance Board) will enable new types of games to be created (such as fitness games like Wii Fit and EA Fit Active).

- Nintendo has recently released a movie watching service (similiar to Netflix Watch It Now) in Japan. It's likely that a similar service would be considered for other countries.

This author consults with leading institutions through GLG