And gaming has lived off gamers for the last twenty years, not the millions of new customers who bought a DS.
What would be "substantial moronic" would be to release a device with a similar price tag to an iPod Touch and have no hard drive, similar graphics, have far, far, far less functionality, but oh wait, this one 3D!
You realize that Nintendo needs to differentiate itself, which is good, but you need to make the next jump and see that offering a handheld with much better graphics is a way of doing this. Nintendo needs to differentiate itself from Apple, and if the cost of doing that is a slightly higher price tag, they'll do it.
I'm not saying that I'm certain to be right and that you're a moron for thinking differently, but completely dismissing the possibility is dumb.