The thing about Square-Enix is that they are the antithesis of everything Nintendo preaches: they place great emphasis on presentation and expanding the immersion of the player and storytelling through every technical and cinematic trick in the book. Nintendo doesn't build consoles that can handle what Square-Enix really wants to do, hence why we get Dragon Quest X (the series that prides itself by looking and playing like a glorified 8-bit game) and not Final Fantasy XIII vs. Wii or some such thing.
But this wasn't true of them before this generation, they didn't care about power, which is why they made most of their games for the market-leading market leader. They didn't give a rat's ass about demographics. And to tell the truth, it's not really true today, considering they've released most of their games on the DS, which is... well the weakest system out today (funny that nobody seems to care now.) Is that handling S-E's "vision?"
If Nintendo wants Square's support, they're going to have to build a console that can do what Square wants to do. Combine that with previous bad blood between the two companies from the SNES->N64 days and I think you have the reason why we never get Square-Enix's AAA titles (Dragon Quest IX and X nonwithstanding).
The DS? I could have sworn Square Enix would have wanted for more graphical graphics to tell stories with. Maybe it's because when the DS took off, S-E ADAPTED to the market's wants as opposed to leading a Pickett's charge into debt for the sake of Sony fans.
Bad blood means little if anything today. If anything the GOOD blood between S-E and Sony has led to this strange loyalty to them that is counterproductive and inflating costs out the wazoo. Seriously, just two PS3 games seem to be dictating their entire course. Like there is an internal war between two factions. The PS3 team (FFXIII and that other game), and everybody else. Could you imagine if FFXIII had been announced as a Wii game in 2006. It'd probably be out now, with no need to gouge fans for asking full price for a demo disc. And probably that other game too. And maybe they'd actually have some spare time for a few side projects, and maybe some of those side projects could be great games. But instead we have this monolithic FFXIII that is lording over everything else, drawing resources while a WIDE OPEN MARKET, WHICH HAPPENS TO BE THE BIGGEST, is left untapped for... some reason.