My nine year old nephew informed me last week that he definitely wanted a 3DS rather than an iPod Touch because it's 3D! That's better than the iPod Touch which isn't 3D at all. But I think in a few years he'll see the benefit of the iPod. Being able to buy a game a week with his allowance rather than saving up for a $30 or $40 game is a big advantage.
Nintendo needs to wake up to the fact that game prices are going down. A game like the Legend of Zelda will probably still sell for $50, but they need to be competing more strongly in the under $10 market. That means getting their Internet connectivity sorted out and expanding the selection of downloadable titles.