Whatever it is, I think the DS is definitely proof of strategy for the Revolution. Yamauchi said that Nintendo lifeline would ride on the success of the NDS, and successful it was. The Revolution does not need to have tricked out graphics, it just needs to have good graphics, and we already know for example, that the Gamecube has good graphics so we can be assured that the Revolution will have comparable graphics to the other consoles (since those other consoles still don't have anything that comes as strong as the PC video cards anyways). As long as the Revolution gives you noticiably better graphics, thats good enough. As said by Iwata, there will be an upgrade, but it won't be massive. All you need is an architechture that plays games efficiently and can support the demands of next generation AI processing for a good challenge. The real meat of the system is in the interface. Just like the DS, the interface is what hooked on many developers. Sure, Nintendo could have made an upgrade to the GBA, and released a GBA2 that was just a portable Gamecube and sold it for $300+, and if it were to go up against, the PSP, Nintendo would probably loose. Instead, the DS's plays 3D games and performs well. Its no PSP level graphics, but thats not what matters. In having created a peice of hardware that reminded all the developers about what making games is all about, the developers have jumped onto the DS for the creative opportunities, and even if all the Sony fanboys outnumber the Nintendo fans, the NDS will simply crush their dreams because the developers won't be making as much for the PSP. With an already existing Nintendo fanbase, the developer's choice was reaffirmed, and eventually, those Sony fanboys will realize their PSP is nothing better than a half baked media player, and internet browser and dump it.
This same strategy will help the Revolution. Same kind of strategy in the design of hardware. A definite upgrade of hardware, but as people who build, built, or have bought custom computers, the price of technology is climbs unproportionately after you get to a certain level and reach the upper levels of avaliable tech. So there exist a certain level of technology where you are comfortable with, and with which will play games well, have good graphics, etc, but not cost buckets of money like the top of the line Alienware PC system. Whats important is that the Revolution has already gained the applaud of just about every 3rd party developer out there, having again reminded them of what making games is really about, and the creative possibilities of having both a unique input system, as well as a conventional controller. Again, I think that once the 3rd parties latch on to here, the same strategy will play out as with the DS vs PSP.
Whether its just an upgrade or completely new console... its not that important. The controller component of the Revolution is probably many times more crutial than any technical detail - rest assured that the Revolution will definitely be several times stronger than the Gamecube already.