Sure, it wasn't cheap at launch and it marked a leap in console prices compared to previous generations, but it was around the same price as a standalone Blu-ray player as those were just coming to market.
So at that point, why not get the more capable console?
Of course, 99.9% of other BluRay players will also support DVD/CD, so yeah it still does seem silly.
I also remember my Dad’s disappointment when he put a standard DVD in our Wii back in the day. Those are literally the same physical format as wii disks.
Also I don't think Nintendo wanted to turn the Wii into a cheap commodity DVD player, they make most of their money on the games. It is a shame because the Wii was one of the most TV friendly interfaces and inputs, at least when the Wiimote wasn't being throw at the screen.