Let's see here.
A) Backwards Compatibility
B) Start from scratch with developer tools and graphics engines (aka PS3's situation, except that Nintendo didn't have the advantage of being a major gaming power in the last console race to convince people to develop for a new architecture, and they do not have Microsoft's position of also being a PC developer).
C) In order to compensate for new CPU/GPU architectures and more RAM, they would also need to significantly expand the size of the unit (hint : the Wii's small size is a significant factor in it's popularity).
D) All of these factors together would have increased the costs of the console dramatically, unless they want to risk quality control problems like Mircosoft has. And if Nintendo doesn't make a profit off of their gaming hardware, what
division is going to cover their losses?
And btw, the crappy 3rd party graphic efforts come from a LACK of efforts, NOT a lack of hardware.