First off, let me say that I believe that the Wii is worth the price. That being said, Nintendo missed 2 major opportunities with their pricing strategy. First they overpriced the console with a forced bundle in the US. Second, they disregarded their own good advice regarding the price of titles.

If Nintendo would have released the Wii at $199 they would probably have walked away with the sales championship crown this holiday and for the forseeable future. Unfortunately, with the $250 price tag they are within spitting distance of the 360. I understand the point that a 'packin' is added value, but what about choice and what about those parents who don't understand that? It isn't obvious to me that gamers will pick the Wii over the Core 360, nor does it seem likely that non-gamers will pick up the slack this early in the game. I can see that dropping the game and the price would likely be taking a step backwards in value, but it is easier to sell on price when there is a significant difference. LoZ: TP with the Wii will equal the Core 360 in price.

If Nintendo had announced first party games at $35 or $40 permanently, they would have set an example for the industry that would likely have made serious problems for their rivals in the long term. Remember when Satoru Iwata slammed unhealthy software pricing cycles? His argument was that if you come in high then reduce price after 6 or 9 months that consumers will begin to expect that and wait. He railed against this 'unhealthy product cycle' and rightly so. Mr. Iwata said that the best policy is to appropriately price lower and stick to it for a lot longer. Too bad Nintendo wasted this opportunity to execute on this valid idea.

Think about this: if the Wii was $199 with no games and the games were $35-$40 dollars with no discount for 18-24 months, would Nintendo make more $$$ in the long run? I think so. Unfortunately that was a road not taken and it might mean that Nintendo takes second place this generation. That is an improvement, but they likely could have won competing on price and innovation.

Microsoft's decisions are looking more and more prescient as time goes by.  They have a significantly better chance of winning it all now than they did a week ago.