It is also important to look at what Nintendo has been doing. The Wii came out in North America in November of 2006, and made a December 2006 release in the Japanese, Australian, and European markets. The Wii should be close to the end of, if not its overall life cycle, the "prime" of its life cycle. Even if it had been completely state of the art when released, it has had five holiday shopping seasons; it is near semi-retirement (or full fledged retirement if the market isn't favorable).
Now on top of it just being "about that time", Nintendo has had fantastic success with the Wii... and you can't resell to everyone. Coupled with the above, by now most people who want a Wii have it, and I know quite a few have even sprung for it as a gift for family or friends! That's how great the market penetration is, there are just so few people left to buy it for the first time, and while there is a newer model available, it doesn't contain all the features of the original, so it is something of a niche item.
Now we get to the actual hardware and software. The Wii was designed to be "affordable", and I'd say it worked, but it was a trade off. As someone who doesn't fixate on graphics, even I know that what was "good" for the Wii was "poor" for the X-Box 360 and the PS3. Overall the improvements the Wii offered over the GameCube basically was a half-step for the visuals. I've always worried more about the "game" half of "video games", but for those who live and breathe (and buy and play) based on "eye candy", that was a huge issue. Still in the end, the hardware was showing its age when it released, so again you'd expect the Wii unit sales to be struggling.
It is the software sales where some surprise is merited. Nintendo has released a lot of filler, but you don't have to buy it so that isn't the only problem. Gaming has made some significant changes, some for the better and some for the worse. In principle I like DLC and the Virtual Console, but some aspects of it are really annoying. Plus gamers are burning through titles like never before, so it isn't unusual for someone to burn through the big holiday releases long before summer. If a system doesn't have multiple big titles coming out each quarter, it is perceived as a "drought". @_@
Then there is the Nintendo DS and the milking of it. Nintendo chose to get their money "up front" by releasing too many Nintendo DS revisions. Looking at it, the DS Lite should have been the "original", with the "brick" version being a prototype known only to fanboys, and either the DSi or the DSi XL, or perhaps even both should have been skipped. Coupled with the high initial price tag, it is no wonder the 3DS underperformed until the free game or price drop offer.
So really, I'd say Nintendo's future is mostly in its own hands. This is still not good news for them, but its bad news most of us saw coming. The real significance is it showed how overconfident Nintendo is again becoming... which preceded their last major decline during the N64/GameCube generations.