Everybody loves an underdog - even when the underdog is a massively rich mega-corp with a track record of silly decisions.

In the early days of the current console generation, Nintendo was on a dangerous back-foot. Neither the N64 or the Gamecube had been the smash-hits the Japanese developer/publisher was accustomed to, and the console war had become a cagey contest between Sony and Microsoft.

While the continuing success of the Gameboy and DS range meant Nintendo was hardly in the dire straits some claimed, it did seem like its days of ruling the living room were long gone.

Then came the Wii, a console that flew outrageously in the face of what we expected from the next generation of gaming. No high-definition output, very conservative online functionality, a controller with a mere seven buttons and games more focused on brightly-coloured mini-challenges than the blood-splattered epics that characterised the Xbox 360 and Playstation 3. Unthinkable!

And, very quickly, the Wii became a sell-out success. Microsoft and Sony's public contempt for the weirdly unassuming Wii rapidly turned to something like panic: an outsider had won their war. Last November - the biggest console-shopping month of 2008 - Nintendo sold over 2 million Wiis. The 360 sold just under half of that, shifting 836,000 consoles. Pity the poor PS3 meanwhile, which flogged a mere 378,000 units.

On top of that, Ninty sold 1.5 million Nintendo DS handhelds. So, 2008 was definitely Nintendo's year - the question now is whether Microsoft and Sony can arrange a re-match, or if it's all over until the next round of hardware launches?

Chasing the casual gamers

Microsoft is already trying its best. While the Xbox 360 has been very successful in terms of reaching established gamers, thanks to the chart-topping likes of GTA IV, Halo 3 and Gears of War, it has never quite managed the family appeal of the Wii, even with all its music and movie features.

Christmas saw a massive marketing push from Microsoft intended to re-establish the console as a living room toy for any and everyone. A redesigned interface shifted the 360 from teenager-pleasing gaudiness to subtle boxes populated by twee, parent-friendly caricatures of the players. It also pushed downloadable games closer to the forefront - its Xbox Live Arcade sales nearly tripled in the wake of the update.

Meanwhile, Microsoft released determinedly broad-appeal games: the karaoke title Lips and comedy video-editing curio You're In The Movies. The games may have enjoyed primetime TV advertising, but they weren't well-received by reviewers and didn't make a significant dent in those all-important November charts.

Clearly, there'll be ongoing downloadable content and perhaps a renewed marketing push, but it looks as though this opening gambit to ensnare the casual gaming audience has failed. Tellingly, even Guitar Hero World Tour, a rhythm action game available on all console formats, sold almost double the amount of units on Wii than it did on 360 in November.

The problem with perception

There's a critical problem of perception that ensures this will always be an uphill struggle for Microsoft. 'Xbox' is a word that, for many, is now synonymous with one of the negative stereotypes of modern gaming: boys shooting other boys online. Call of Duty 4: Modern Warfare has become its banner game, and it's even the current go-to gaming reference in TV shows and movies. It's violent, it's aggressive, and its controls are horribly complicated for rank newcomers to gaming - and that's why the Xbox 360 simply won't have the same appeal to parents as does the Wii.

Even aside from its current sales problem, the PS3 suffers from a similar stigma - the Playstation is, after all, the traditional home of the ever-controversial Grand Theft Auto. It doesn't help that the 360 and PS3 are both large, fairly noisy lumps, while the Wii is small, understated and not overtly console-like.

Microsoft would need to absolutely swamp the 360 with high-quality games designed for people who don't already play games in order to get past the preconception that it has built over the last half-decade, and in doing so there'd be a strong risk of alienating the console's still-huge existing audience.

That's a price Nintendo has already paid with the Wii - a vast slew of samey, gimmicky and low-rent titles have turned a lot of gamers off the console. The sacrifice, so far, has been worth it, but it would be an insane gamble for Microsoft and Sony. Though one might argue that the PS3 is in such bad shape already that it might as well take a risk.

The gap probably can't be closed, although this is a console generation that still feels surprisingly in its infancy and there's a fair few years left in this round of hardware yet. That the Wii has been such a success in spite of its inferior graphical prowess means the traditional emphasis on ever-better visuals has diminished and there's now much more scope to make cheaper titles based on good ideas.

Microsoft and Sony's best bet is to focus on downloadable games and content, as it's an area where their hard-drive equipped, broadband-centric consoles have a clear advantage over the Wii's limited online features.

They might struggle to sell as many hardware units as Nintendo's endlessly appealing Wii and Wii Sports package, but they can still clean up on software, especially by pushing cheap, appealing titles for all ages and abilities, sold instantly over the web.

This is looking to be an extended console generation, which means it's got years to take advantage of ever-growing high-speed broadband adoption. The general paucity of its third-party games means the Wii's gimmick-based bubble could well burst before too long - in which case the online dollar will be the centre of everyone's attention.