I think there is a very strong argument to be made (and it has been, by multiple people in multiple NPD threads) that abandoning people who came to console gaming via the Wii has led to those people abandoning console gaming completely, so we have a market of consolidated niches targetting solely the highest spenders.
This is great if the only games you enjoy happen to be in those consolidated niches, and you don't mind paying more and more money for less and less content.
If you don't however you might be sat there wondering "what the fuck has happened to this hobby of mine?".
It's certainly a popular sentiment, but it seems like wishful thinking to me. How exactly do you gently introduce a bunch of non-gamers who have no interest in playing traditional games to traditional gaming on a console they bought to play motion and fitness games? Keep in mind that however you do it you'd better do it fast, because you've only got a few years before smartphone gaming eats the Wii's lunch.
In order to hold on to the blue ocean audience you've got to find a way to make them appreciate the sorts of experiences that they can only have on a console as opposed to a mobile device. It would have taken years and years to slowly acclimate the Wii's audience to console gaming, and the Wii didn't have years and years.
It's also hugely reductive to suggest "all hardcores stayed and bought HD twins" and "all casual left to play candy crush saga". There isn't a binary switch between 'hardcore' and 'casual', there is a huge and varied spectrum. This is why you can see a company like Gameloft getting huge simply by cloning successful 'hardcore' games on mobile - those 'casuals' that left because they weren't getting any interesting games on the Wii are buying exactly the type of games they would have bought on the Wii if anyone had been making them, they're just now doing it in a completely different market.
The reason these casuals are buying Wii games on mobile now instead of on the Wii isn't that no one was making those games on the Wii. It's that they prefer playing games on their smartphones to playing games on their Wiis: a smartphone requires no additional expense since you already own one, it's always with you so you can play on the go, you don't have to fight with anyone over the TV when you're at home. All else being equal this audience just prefers gaming on their phones because the sorts of games they play aren't improved by superior graphics, the home stereo experience, more precise controls, or any of the other advantages of consoles over mobile devices - especially considering the Wii explicitly rejected those advantages in favor of SD and waggle.
If you enjoy console gaming, losing vast chunks of population to non-console gaming is not a good thing.
It's not a good thing, but it's only a catastrophe if you think that this audience comprised a large proportion of PS2 gamers, which I don't, or that this audience could have feasibly been convinced to stick around instead of defecting to mobile gaming, which I also don't.