I'm pretty sure that this has been debunked as a baseless rumor by now, it even says in the article that the indicators of a Wii HD could have simply resulted from the DSi. They may be planning to overhaul online features of the Wii, but I can't see them focusing on the graphics too extensively any time soon.
The graphics capabilities they have now are already more robust than most 3rd party companies will give them credit for, and it is a small cost to use a stylistic theme rather than a realistic theme in order to get the benefit of the motion controls.
And the 3rd party complaints should not be applicable for much longer. They've avoided the Wii either because it doesn't hit the targeted audiences (which may be an unjust assumption on their part), because they were unsure about what the system could do, or because they don't want to go through the effort of making a game look good by pushing the system rather than staying within comfortable bounds.
However, SEGA is backing multiple games that are set out to please the hardcore and the mature audiences, as if to make a point to the companies that are shunning the Wii. Other companies have openly expressed their regret for not giving the Wii a fair shake, and over the last year we've seen quality titles like Deadly Creatures, De Blob, and Boom Blox that use the advantages of the Wii and minimized the disadvantages to gain renown. Add that to the likes of Conduit coming from SEGA, and we have 3rd parties presenting a decent accompaniment to Nintendo's Punchout!! and Sin and Punishment 2.
Nintendo probably will still be trying to improve the Wii, but I don't think graphics is how they are going to go about it. If anything, they'll do the same thing they did with the DSi and keep strengthening the emphasis on being a capable but still reasonably priced multi-purpose machine with an even stronger focus on internet capabilities.
