Normal cost cutting, but I'd imagine Natal will come packaged with it. I love that the market is big enough to support two major demographics early on (core and deep blue), but I think that Sony and Microsoft have two advantages: They can add functionality to their consoles plus it seems that third party publishers do much better on their platforms than on Nintendo's.

Nintendo didn't crush anybody - it went after a completely different (and largely unaddressed part of the) market. Sony and Microsoft have been fighting over the same part of the market that console makers have been fighting over several generations. I don't think the absence of the Wii would've have significantly changed sales of their system when you look at who predominantly buys the Wii.

Microsoft and Sony want to offer something for that market to upgrade to. Also, the closer they get to $200 and under, the more they want to have mainstream appeal. So trying to broaden out only makes sense. My family has a Wii and a 360, and when it comes to casual games there are some I simply wouldn't buy for the Wii - I'd rather get those music games, for instance, for my 360 (yay DLC!).