Of course it provides a 'watered down' experience - when the games in question are ports of the PS3 or the Xbox 360. The hardware and capabilities of the machine cannot compare, so the developers have to shoehorn the equivalent game into the Wii's specs and in the process, trim it down.
If you look at individual titles made for the Wii (not ports of other console's games) then no, I really don't think the experience is watered down. Games are games, and people (should) be playing them for the enjoyment and competition. Maybe we should ask the question about some other consoles games that rely so much on graphics that the point of the game is lost and the entertainment factor is lost. Is this a watered down games experience?