The original Virtual Boy failed for a variety of reasons. The main reason being that developers (including Nintendo themselves) didn't really throw much support behind it at all. Its as if Nintendo realized the VB was a failure, but they pushed it out anyway just to get rid of the ones they had already made.
But I also remember it caused headaches in people if they played too long, and possibly eye damage because of the lasers. It also was really awkward to play, and wasn't really portable in the sense that the gameboy was or the DS/PSP is. It was pretty bulky, and ate through batteries. It also only had two colors (red and black).
So for all of those reasons and probably more, the VB became a failure. But if Nintendo can address these issues I see no reason they can't make something SIMILAR and have it be a success. But the main thing such a system needs is real support behind it. The old VB didn't have any Killer App to speak of, and there was only about a dozen or so games total for it, and most of those were crap. Teleroboxer and Red Alarm were pretty cool though, and there was also Wario Land which may have been the best game of all for it (though still not a killer app).
Nowadays that sort of technology is a lot more mature. Back in 94-95 something like the VB wasn't ready because they technology just hadn't matured enough yet. Nowadays a company could make something that is full color instead of red/black and probably be a lot cheaper and more reliable as well.
Gunpei Yokoi's system wasn't necessarily a bad idea per se, but it was a bad idea for its time and it failed because Nintendo themselves turned their back on it. That doesn't mean it couldn't work out in this day and age with proper support.