Why didn't Nintendo spend just a little more to make the Wii HD?

They didn't care to.  They designed a cheapish console for the lowest common denominator, and decided HD is not a wise use of finite hardware or software resources.  If for whatever reason they'd decided to spend more money per Wii, it wouldn't have been to further modify the GameCube hardware to increase its specs to be more HD-friendly for the low percentage who could take advantage of it.  They'd include a second controller or more flash storage first.  They could've even increased the speed of their processors or added more RAM, but by foregoing HD all of that would be beneficial to those among the SD majority.  720p or better was at the bottom of their list of concerns.