I don't think that's the problem. People (at least most of them) aren't buying the Avalon because of it's power. That's like saying its ok for GM to stick the 3900 in the G6 because it might take Aura sales if it got the 3.6 (even though it is now), or that the Lucerne shouldn't have the Northstar because that should be Cadillac-exclusive and it only steals DTS sales. I think the problem is that when the Avalon came out it didn't have the Lucerne to contend with nor the ES. The Camry may be taking some sales, but I don't think it's because you can get the same engine in both.
Anyways, Toyota sales were pretty good, but what everyone always fails to point out is that Toyota's gains are always made by their new releases. If GM's lineup was the same size as Toyota's, they'd be gaining volume too because such a large percentage of the vehicles are "launch vehicles" -- GM's launch vehicles are doing very well. Other than the Corolla (which I'm not sure how it had such a huge gain - fleet?) and xB, the only vehicles that posted significant gains were the Camry (launch), Yaris (launch), ES (launch), IS (hasn't been out for a year and the old one sold like crap), RAV4 and FJ (both launch). Now, that's a large percentage of Toyota's lineup because it's not as big as GM's, but most of Toyota's products were actually down.