Not too many people will defend naked short selling, it is an illegal scam.
http://www.businessinsider.com/john-carney-why-matt-taibbi-i...
It's only illegal when you do it to manipulate a market or if you intend not to deliver the shares.
The difference is that Nintendo can complete your order - if it were a naked short sell then the seller knows they probably can not genuinely get hold of the shares that they sold you, it may be impossible, Some other trade may have had a promise to borrow those shares and may have sold them to some other buyer.
Nintendo may well actually have stockpiled your Wii already awaiting delivery (I think this is the most likely position).
In the event Nintendo doesn't build the wii, they refund your money. The naked short seller also needs to pay a large penalty.
Naked short selling is more or less the same as "naked wii selling". That's why it's only illegal when you are attempting to manipulate the market.
Theoretically Nintendo could sell more than they can ever manufacture, but they at least are able to manufacture the product at the point at which they pre-sell it.
The NSS is more like Nintendo now pre-selling a Star Trek holo-deck - they'd know it's almost certainly not achievable.
In naked shorting when someone buys a share from a naked shorter in a stock exchange, they do not agree to buy a fake share or a share that will not be delivered. Instead they expect to get a real share. So if the naked shorter does not deliver the share by the end of the three day period it is violation of contract.
One expects "no" will be followed by supporting argument. Instead, we see more argument for same. After all, the "other party ... vigorously" is just as true of stocks as everything else.
Note that the argument against short selling is actually driven by folks who argue against it because they think that it "unfairly" drives prices down and lets people profit from that. They bring up non-delivery because that's an appealing argument, but it's not a huge problem and it's not what they're trying to stop.
Yes, I know about the VW short-squeeze a year or so ago. What of it? (Before you get too excited about the fact that some folks lost a lot of money, make sure that you understand WHO lost a lot of money.)