Also, I think you people far over-estimate HDTV penetration. Out of 110 million homes, only 7 million have HD-capable sets (with a growth rate of 2 million per year = 17 million by 2010). It seems silly for Nintendo to target games for HD, when ~90 million homes can't see it.
Your numbers are way off. Here's a number/quote from 2004 courtesy of AVSforum...in fact, the article is called "the HDTV revolution takes time" so it's not exactly positively spun...
http://www.avsforum.com/avs-vb/showthread.php?t=544127
Research company In-Stat (a division of B&C parent Reed Elsevier) reports that 12.9 million households had HD television sets at the end of 2004. But only 3.9 million were receiving HD programming. Moreover, 51.7 million homes are projected to have HDTV sets in 2008, with 17.4 million receiving HD programming.
That's a lot of HDTVs.
By the arguments you are making, why does anyone buy a new console? Yes graphics don't matter (to a point), but could you play the aforementioned Mario 64 on a NES? Or why move on to gamecube if N64 has good enough graphics? Or, why bother with a new console, Nintendo can keep the old trusty gamecube, since graphics don't matter?
And YES, a 720p video chip *will* cost more than a 480i/p chip. It costs more to develop, and more to manufacture (more stringent quality control). It's obvious that Nintendo is going for a cheap console that even kids can afford.
OMG no it doesn't. The ATI graphics chip will fully have enough power to push whatever HD resolution they want. On my PC, my 3 year old architecture 9800pro, currently $120, runs Doom
ing 3 @ 1280x960 quite decently. Newer cards do even better. The extra resolution takes only a little more video card power, of which it should have plenty of. The new-core chips in the console should wipe the floor with my PC for a couple of years as they are very specialized and have lots of high-speed GDDR3, etc.
The only thing that might cost more would be development, to support the extra resolution - not that much work (there's a reason PC games support droves of resolutions - it's not that hard to program apparently).
Have you ever played a PC game and seen the difference between a 640x480 game (minimum standard these days is 800x600) and a game running at 1280x960, 1600x1200, etc? We're not yelling for 1080p support or anything, 1080i or 720p is perfectly fine.