The concept was simple, I spend about $70 more per device, but instead of buying $500 worth of games over the next 2 years, I will probably spend $50. Why buy $35 DS games when the kids are happy with free and $2 iOS games?
Also, Nintendo should have been smarter than to bet on 3D. The theaters can do it to up-charge us for a minimally better experience, but most people could care less if 3D just went away. The fact that Nintendo bought into "3D is the future" feels very 1985 to me.
The DS and DSi are so good, and the kids love them so much, my personal opinion is simply to move in the direction handhelds have been moving already - better graphics and faster processors. The next step is to lower the prices of their games, but I don't see that happening.