Whether or not Nintendo's newfound success is good for gaming in the long-term can be measured in a lot of different ways. I think a lot of people raised on recent systems will believe that Nintendo's vision is a step back for the "art" of video games because it doesn't push forward production values and complex narratives. It's a step back artistically...which may be true (personally I don't believe it's relevant, even though I love a game with a story).
In our capitalist society, popularity and financial success are popular measures. In this light, Nintendo's change will probably be a good thing for the industry. I've had this feeling for several years that video games could wind up like comic books, forever trapped in a niche realm of manchildren, but I think Nintendo is helping to put video games on the map (with lots of acknowledgement to things like The Sims and casual online gaming).
On the other hand, Nintendo could simply cause another industry implosion like that of the early 80s: build up a big, unstable fanbase and watch it all come tumbling down due to some mis-step. But without taking steps like this, the overall health of the industry could be at stake.
We could also measure it from a civil liberties point of view or a productivity point of view, and probably many more.
Most will measure the success like so: "Do I like these games?" Some are going to answer no. That's too bad, but the same thing happened when N64 and Playstation hit the market, when graphics replaced text adventures, and when talkies replaced silent movies.