If they keep running six months behind it will be the end of them most likely. I'm sure they must be endeavoring towards this goal, with the way this cycle has gone for them.
For sure, the big question is how can Nvidia catch up to ATI. What we're seeing here might be another R600 momement, where Nvidia did extra work (but did not execute very well) and simply needs to fix the flaws in its product to let the architecture shine. To be fair, Fermi does have a certain R600 vibe. GF104 has a RV670 vibe. The most challenging thing will be coming out with the Fermi version of RV770, but God help AMD if they do and NI is their GT200...
On the other hand, it's possible that ATI is simply outengineering Nvidia, in the same way that Nvidia outengineered and killed 3DFX. The fact that they got the entire Evergreen family out in such quick sucession definitely makes it seem like they've kicked it up a notch. They seem to be help back more by manufacturnig than anything else, and the fact that they had to redesign both RV870 and Northern Islands (into southern islands) thanks to TMSC, and are *still* outpacing Nvidia is simply frightening.
Truth is, it's probably a bit of both. For GF100, it seems like a lot of the groundwork for a great product has been done. On the other hand, even without thinking about Nvidia the ATI design team seems to be on a huge hot streak. Fusion is going to rob Nvidia of most of their low end, and could also put a significant dent in their CUDA business if AMD plays their cards right. Things look bad for Nvidia, and I think it's all going to come down to their execution over the next few years. This is the defining moment where they either create and cement their own niche (CUDA) where they can survive indefinitely, or they fade away into irrelevance.