I NEVER said that all significant innovations were hardware.
My point was this: Every so often, an innovation comes along that will effect pretty much everything that succeeds it. I'd say it's a safe bet that all of the major console platforms from the next generation on will have at least motion sensitivity, if not pointing capability in addition. Neither System Shock nor Portal have/will leave that kind of mark. They will be remembered as innovative games, but they haven't changed the industry.
Mario 64 is an examples of an industry-changing software innovation. Most 3D games have borrowed and/or improved upon camera techniques from it.
GTA3 is another example. The free-roam gameplay was not very common before this. How many clones are there now?
Uh, that's my point. Mario and GTA are both very popular series. Mario's early games still are. GTA's are not. It was more of a point about Nintendo brand loyalty as to series popularity itself. Comparing it with Sonic, for instance, would have nullified that argument, as Sonic has had a similar history. Both of those series were made popular in their infancies. GTA was not. That was my point.
I know Nintendo was once very very strict on 3rd parties, which is why they jumped ship when the PS1 came out.
But, that is not the argument I hear. From what I have read at varying gaming sites is that the heads of 3rd party publishers are under the impression that 3rd party games do not sell well on Nintendo consoles. Whether or not that reputation is deserved was not my point. It is that it exists.