I don't know anything about Kaizen, but I do know my old DS' light is not bright enough to play outside on a sunny day, and that bugs me. Not enough to buy a Lite, but enough to consider it when the price is lower. I'd call it a genuine "defect" It's also slightly on the bulky side, though I don't know if that's really a "defect" in my book.
Edit: I read over the whole letter. While much of it is interesting, I feel he kind of wandered around the point of why Xbox 360 games aren't selling. He kind of gets to it finally when he says it's hard for American publishers to achieve the type of game the Japanese want to play. Plain and simple, I don't think Japanese gamers are that interested in western games, and that's what the Xbox mainly has. Even the Japanese-developed games are aimed more at the American audience (see that new zombies-in-a-shopping-mall game from Capcom, or the Auto Combat game from Sega). It's not impossible for western games to appeal to the Japanese, I've heard that the Banjo Kazooie games were pretty popular there, but it's rare (ha ha ha).
Microsoft has tried to counteract this with a couple of Japanese RPGs, but to the best of my knowledge only one of those has been released so far, and none of them are big-name franchises. It may be too little, too late.
His comments on hardware design were pretty interesting, although it's also interesting to note that Microsoft actually seems to be embracing "Kaizen" more than Sony. Microsoft is setting out to improve on the Live service, one of it's previous strengths, and it also created the external harddrive. The author says the 360 is still not small enough, but there's no denying that it's smaller than before, so MS is dealing with the problems.
Sony, on the other hand, doesn't seem to be working to improve much on the PS3, and what they are improving seems to be stolen from competitors, rather than improved naturally by Sony. Online from Microsoft and motion control from Nintendo. Perhaps Blu-Ray or the Cel processor will turn out to be big improvements, but so far I don't see how either enhances gaming at all. If I'm getting the concept of Kaizen, Sony is doing a horrible job of it.