Yeah, I agree. If the console hit at $150 I could completely overlook the subpar graphics, but $250 ain't a mainstream price, IMO. Especially with the controllers being $60 a pop. A Wii plus one controller already costs more than an Xbox 360. That's just not a significant price difference.
I want the Wii more than any other console because of the innovative controller, but graphics are important. It isn't just icing. It makes gameplay better and creates new kinds of gameplay, and makes games more immersive. Physics is important. AI is important. Sound is important. These are all legitimate pieces to the next gen puzzle and they all require processing power.
Nintendo should have either given us a truly mass market price, which they could have done while still not taking nearly as heavy a loss per unit as MS with the 360 or Sony with the PS3 (they aren't taking any loss on the hardware at all), or they should have made a console that was more competitive visually with the 360 and PS3. Since they did neither I truly doubt they will end up market leader in this round. Had they done one or the other I think they would have been.