The gist of his argument is that according to The Innovator's Dilemma by Harvard professor Clayton Christensen, many companies fail to understand when technology becomes "good enough" for the majority of consumers (read: not hardcores). At that moment, also called an inflection point, people stop paying for better technology opting to buy the good-enough cheaper products. Hence, Wii's HD-less graphics could potentially suffice for average gamers assuming developers don't significantly enhance gameplay via all the horsepower found in the PS3 and 360.
From Takahashi's recent post on Mercury News: "As I see it, Nintendo's console is indeed competition for the Xbox 360 ... If Nintendo is right, Bill Gates may not realize just how much of a competitive threat Nintendo represents. Or, more likely, he may just not be willing to acknowledge it."