I think people tend to confuse Nintendo's over reliance on their first party franchises with failure to innovate. They're not making the same games over and over - Mario Kart is a very different game from Luigi's Mansion and from Super Mario Galaxy (hell, they aren't even in the same genre). They just happen to use the same characters over and over, in which case I don't think they should be faulted. They're maximizing the use of brands they have established.
I think the other two companies would have done the same thing, except they haven't been around long enough to establish their own brands as much as Nintendo has (I mean, how many times has Kratos appeared in games, anyway? He's got 4 main games, 7 if you count the HD rerelease, and he appeared in several games as hidden characters. He's getting there. On Microsoft's side, they're milking Master Chief. The amount of Kart Games and SSB-style games from other developers kind of makes it look like Nintendo had the right idea and other companies are trying their best to get a piece of the pie)
I'm not saying Nintendo is without fault, though. I just think that the real problem they have is their failure to secure third parties as well as the other two companies did, not their overreliance on first party titles.
It's kind of obvious that third parties are really the driving forces for videogame consoles, and that Nintendo is only able to become the exception because they were able to build a nest out of their own brands. In fact, one of the best things they did as a business was during the NES days, when they got overwhelming third party support due to their ridiculously draconian policies.
As for gloom-and-doom speculations regarding videogame consoles, I think the real hurdle they (all three major console makers, not just nintendo) have to get through is the hollywood-ification of the industry. Games these days are too expensive in order to cover the ridiculous cost of production. It's getting to the point where a game that sold 1.4 million copies at 40-60 bucks a pop is considered a failure (Capcom's SF X Tekken, for example), while on the other hand, there's games over at Apple's app store that is making bank for a dollar per download. The big three could wrestle all they want but their true competitors (casual games/apps on mobile devices and browsers) have been eating away at their business for quite a while now.
