The fact that they can sqeeze out a game such as skyward sword on an upgraded tech from 1998 would only show how much nintendo is capable of using the hardware to its fullest. I wouldn't be surprised that the guys who did the zelda demo were using hardware that was even lower in power than the 360 but are still able to produce a better looking and moving game than all 360 games at the moment. Imagine what they will be able to do when they are using assets at a much higher quality
The spec for wii-U last E3 was certainly above X360/PS3 for all obvious reasons and then some. we could point to the bird demo though.
As for Skyward Sword, the game isn't as impressive as TP is despite wii being more powerful than GC (all the more because of that, actually); the soft shadow tech has been simplified; previously on TP it would create a hollow molding with transparency of the object it was being cast (stones, objects, you name it; on SS it doesn't really mold itself to any extra geometry, it just sticks to the regular ground; it's higher res, but the only reason it was low res on TP was lack of RAM on GC. Shadow tech was definitely more impressive on that one.
The water was also better on TP, it was more varied/had more effects to it, and the game is heavily segmented (the way stuff like jumping from skyloft leads to loading and the landing sites being scripted), TP didn't need a streaming engine in that sense, but SS clearly needed it. Remember the Goron mountain hot water lushness in TP, the regular water, the lake hylia one (pretty, but lacking some effects, underwater specially if you looked up; no doubt because of how vast it was); and the fairy fountain's water. SS by comparison only had one type of water "type", I think.
It feels that, apart from the lush cutscene models, animation and impressionist filter graphics were an afterthought/something they focused on only later on. And that's ok.
It was really a game build with the intention of taking advantage of the complexity added for previous games (for instance, the "local time travel" in the desert clearly makes use of what was originally both the twilight world from TP and midna's circular attacks; and the trials are clearly taken from the Tears of Light segments) the motto for the game was re-use in a meaningful way and to make a game packing loads of content taking advantage of stuff already in place... not really add to it (other than the controls); reason why link still gets horizontally dragged to the pre-set position where the animation for opening doors takes place and stuff like that, because they didn't really mess with the tech in anyway; in fact at places they simplified it (shadows and water as I already pointed).
with TP they were fighting the system to make something really impressive for 2006, Zelda SS? Not so much. It'll age more gracefully only due to having less compression on the textures and more color to it/more cartoony style. It's not really all that impressive.
You have to remember that nintendo already has their artists doing high resolution assets. Those other devs who stumbled are not as good as nintendo plain and simple. It might be better to give nintendo more credit with regards to programming skills and maybe give less credit to middleware for making games on a phoned in engine look as good (or as bad) as they do. I do agree with that nintendo will partner with some companies for some projects, but Nintendo doing this will alo provide these developers extra help releasing some of their knowledge. I can see nintendo once again having a very big advantage about the knowledge of the hardware so they must partner to give other middleware developers a way of making it easier for the rest of the smaller developers.
Nintendo is fine regarding tech; they might use third party tools but it's not like they really need it. Unlike previous generations though, Nintendo didn't hold any information from third party's when it came to the wii, after that it's all a matter of resources and investment.
Regarding their games though, we usually regarded a game that pushed hardware as a system pusher, or if it pushed loads of polygons a polygon pusher; but we never see nintendo going to those lenghts disregarding the core game; hence I usually class Zelda and Mario games as ambient pushers; they could have pushed more polygons on Zelda OoT, but decided to instead add some life to everything, like fishes, butterfly's polen going around, sun glare... All those touches. They weren't cheap on the N64, but added so much more than just adding more geometry.
Nintendo games are never the absolute system pushers, TP didn't push the most polygon's either, but it was balanced as fuck, it managed to do detailed shadows for everything, some AI, have a lush geometry and all that. In short, they're a balancing effort rather than a blind pursue of something... they're all rounders.
And making all rounders ensues developers can always pull something more impressive in some sense, providing they work for it.
It is important for nintendo to make one or two really visually stunning games such as zelda, mario and metroid but what nintendo needs to do is make it easy for the developers to make even more visually stunning games as they do not have the prestige or experience in game mechanics that nintendo games are known to be good for which brings good competition and variety for the consumer. Having good competion will ensure a healthy ecosystem for the platform and might quash the nintendo third party curse. I believe this is why nintendo is teaming up with outside developers such as crytek, vigil, and 4A games to release games on the WiiU early to show other developers what can be done by other developers not just nintendo. Having other publishers also getting in early such as EA, THQ and Ubisoft being able to already come up with new and exciting ideas for existing franchises will also help the smaller developers gain some confidence in maybe bringing their upcoming games to the platform
You're forgetting Nintendo is just part of the equation. The reason third parties sucked on the wii wasn't Nintendo's, it was themselves.
They didn't understand the platform or the market. This time around they have to invest, advertise and not treat it as a secondary platform if they want to succeed on it.
But the actual game available on said system was Wind Waker. The tech demo had nothing to do with Twilight Princess.
Just like the demo of the N64 one didn't have anything to do with OoT; it actually has more to do with Mario 64, seeing the metal cap algorithm/idea came from the knight in that demo.
Then again, in the end, OoT engine was forked and heavily modified from the Mario 64 one, so there's always a connection; but that demo sure didn't turn into OoT.
Similarly; WW and TP actually share the engine, although the graphics overhead was seriously reworked. As for the demo, I know it was done by members of the MM/Zelda team in a short timeframe, but I really don't know if they took anything useful from it or just started from scratch, probably the later.
I'm actually more worried about the controls of a Zelda SS follow-up with that controller.