And yet, HD on the Wii would've added costs that were completely unnecessary at the time.
Remember, back in 2006/7, HDTVs were pretty much limited to the family room, if the house had an HDTV. Almost certainly the main users of the Wii won't have an HDTV (well, I'm sure there were a few rich families who bought a HDTV for their kids back then).
You just said the second point I wanted to bring.
The Wii is marketed as a console for the living room and indeed, while we have several consoles at home, the Wii is the one that get the most time on the big screen. After all, party games and local multiplayer is where the Wii really shines. In the end, it makes the lack of HD even more noticeable.
Note that I don't think that it is a bad move from Nintendo. The Wii sold really well and was always profitable. I just said that, in my opinion, the Wii would have been much better with HD.