I forgot said:
Not having a DVD function is hardly what I call "no longer able to compete based on the quality of their product".I buy a games system to play games. And how will gaming be better if they go Sega?
Not having a DVD player is just drop in the bucket when it comes to Nintendo these days. Both of their current systems, the Wii and the 3DS, both rely on some form of gimmick to get them over rather than being a quality product that can compete on it's own merit. The Wii relies on horrible motion controls and the 3DS relies on equally horrible "3D" technology. Furthermore, it looks like the WiiU is following right in their footsteps. Nintendo is FAR more interested in the bells and whistles they've all but abandoned the core elements in favor of meaningless gimmicks.
As for how would gaming benefit from Nintendo abandoning the hardware market and becoming just another game developer for proper systems? First off it would allow them to focus on what they are good at. Nintendo games typically are high quality despite being horribly redundant. They would do well developing games for Sony and Microsoft.
Secondly they would cease to continue to embarrass themselves with shoddy hardware offerings. Outside of a couple of decent portable consoles Nintendo has released nothing but a solid stream of shit when it comes to hardware. They are simply unwilling or unable to compete without some sort of gimmick to get their consoles noticed. Honestly, the Wii only got over because of motion controls. However, they tried to catch lightning in a bottle a second time with the 3DS and that is in the process of going downhill quickly. I believe the WiiU will ultimately suffer a similar fate.