If you stop and think about it these specs make a lot of sense. Consider these two points together.
1. There are 2 primary concerns in developing a new console: technical capability, and consumer accessibility. Put simply: power and price. Take a moment to think back to the launch of the 360/PS3. The PS3 had, vastly superior processing power, Blu Ray, and Sony's pedigree as top dog of the previous generation behind it. The only major selling point of the 360 was price. It was, at launch 25% cheaper than the PS3. I don't think there's really any debate over which has won the console war, the 360 has been far more successful than the playstation over their lifecycle.
2. Nintendo has been trying to revolutionize the traditional video game controller for 2 generations now, and I'm not talking about the Wiimote. Remember Final Fantasy Crystal CHronicles? Yeah, now you get it! For those of you who don't know, FF:CC was a gamecube game, whose mulitplayer mode was played not with Gamecube controllers, but with gameboys hardwired into the gamecube itself. The technology was carried over to the Wii, which allows for the DS to serve as a wireless controller for a small number of wii titles.
Nintendo obviously sees potential in this concept, they've gone to an lot of trouble over the last decade to develop the system for a paltry number of titles. THe obvious problem is the absurd barrier of entry: 4 player gaming using gameboys as controllers would cost nearly $1000. I don't believe its much of a stretch to imagination Nintendo rolling such functionality into its next consoles base feature-set. Trouble is those controllers would be very expensive, similar to the cost of including blu-ray drives in early PS3's (before the technology became standard). Nintendo knows its audience, specifically that they aren't going to buy a $400 console, so they have to sacrifice computing power to keep down costs.
If this controller rumor is even remotely true, don't be surprised when the Nintendo Gamesphere doesn't have an internal harddrive. Which essentially makes it a 360-Arcade with a hightech controller, and i think thats exactly what nintendo wants.