They're already diluting their brand by using commodity hardware.
The 6502 CPU in the Famicom/NES wasn't anything special. The CPU in the SNES wasn't, either, although that system had fancy (for the time) GPU and sound. (The Famicom/NES also had better graphics and sound than home computers like the Apple IIe and Commodore 64.)
Those two systems are responsible for the lion's share of the Nintendo brand, at least with older folks.
I doubt the original Wii sold because people were concerned over what CPUs and GPU were inside the box but I can see the argument that their custom controller hardware was the key so I suppose it supports your point.
The IBM PC was laughed at by enthusiasts for using mediocre commodity hardware but look what happened with it thanks solely to the IBM brand. That is probably the best example of how brand power alone can propel a mediocre product to success.
The biggest risk in using weak cheap hardware is providing a distinctly weak gaming experience in comparison with a competitor. That's what Atari did when it tried to combat the NES with the 7800, 2600, and XE. The XE in particular was capable of doing arcade ports that were superior to those on the NES (see 400/800 Donkey Kong or PacMan and compare with the inferior Famicom/NES versions) but the depth of the games offered was minimal. There was nothing like Metroid, Zelda, or SMB on an Atari.
By contrast, the highly custom Jaguar offered a great improvement over the SNES but failed because it was backed by a weak brand/company. If Square had put FF7 on it it would have probably been a hit.
Game depth is what trumps everything, really. Pretty graphics can only take a game to the point of getting a foot in the door. The same is true for gimmicks. Virtual Boy was a failure because, even though it was a neat gimmick, it didn't offer a gaming experience that was enough of an upgrade.