But do we need to?

Frankly, comparing the PS5/XSX exclusives to the Switch's latest releases I think Nintendo is doing better than the others. We are hitting diminishing returns as far as gaming hardware advancement goes. The PS4 was already capable of outputting great visuals in large screens, and even as far as 2023 very few games really needed more than that. The Switch as it is can even handle most indie and double-A games.

This is not even bringing up that higher definition games necessitate additional work and therefore have longer development times.

To me, a new Switch that is as capable as the PS4 sounds pretty good.

That's true, but using older, less expensive hardware had almost always been part of Nintendo's business model. A cheaper console allows them to invest in game development--time, talent, and just money. If they used cutting-edge tech, they would have thinner margins (or even lose money on the console at first as Sony and Microsoft have done in the past), which would give them less to invest into game development. Nintendo spent an entire (extra) year just tweaking and polishing TotK; if they had thinner margins from the Switch, there would probably have been more pressure to release it earlier, which would have given us a less refined game.

I'd love it if we could have both great games and cutting-edge graphics, but at the end of the day, I'll still take good games every time.

The switch is like 1/4th the steamdeck and much more comfortable as a handheld

I still use the steamdeck more due to a larger library, but for the games that switch does support it's usually much more comfortable. There's definite tradeoffs to top of the line hardware on a handheld, and Nintendo has known that since that beat out the game gear with the Gameboy, mainly due to battery life back then.

I feel like people downplay the size factor either because they don't use it for it's handheld properties or for them personally they have issues making it comfortable.

And honestly I don't see the issue with it being a gen behind. Games will still be made for it, and if it's a top of the line turbo graphics game I'm just going to use my Desktop. I probably wouldn't have used the Steamdeck anyway because if Switch is low range, steamdeck is midrange, and still not where my desktop is.

But the idea of great hardware and great software is still a mixed bag. And Nintendo's titles show that it's not so much the hardware holding them back but that companies won't make their games with the switch in mind, which is both fair but also gives expected results (such as the recent MK game)

Not with a handheld