They should be thinking long term. Nintendo already won this gen because PS3 and 360 will not outsell the Wii.
Keep in mind though that the Wii was never really competing with the 360 and PS3. Sure, it was a great gimmick for Nintendo, and they were able to pull in a huge casual gamer base. However, the casual gamer base isn't reliable as a long term customer, and Wii sales are declining rapidly, because practically everyone has one.
Nintendo realizes now that they can't just ignore Microsoft and Sony. If they want to stick around and still be a viable system, they need to appeal to the core base of gamers as well, who are more likely to get a 360 or PS3. As a result, Nintendo is building a more powerful system than the PS3, and is also going to support 3rd party game developers more so than they ever had. This is really Nintendo's opportunity to maintain their casual base, while also allowing their console to be well-rounded enough to appeal to core gamers with multi-platform AAA games, without it being too expensive.
If Nintendo's plan works, they will be able to have a powerful system that is relatively cheap, while also maintaining their casual base with Wii mechanics. But also Project Cafe would allow for 3rd party developers to build games on the console, while also having Nintendo's lineup of AAA titles. Considering they are releasing this new console in between generations, this could be exceptionally profitable initially, and perhaps even when the new generation comes as the next xbox and PS4 will likely be too expensive for most.
If Nintendo's plan fails though, they could be the next Dreamcast...