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Regular people still get the wow actor from the PS3 and Xbox 360 graphics and are still buying a lot of them, and in some development countries (like mine) they just became affordable to the masses.

If the new consoles are not too powerful and they can sell it at a decent price they will have quicker market penetration and we will have a shorter generation (5-6 years, instead of 10 year plans), and that seems to be beneficial for developers.

Developers will also be willing to take more risk, as the costs will not increase too much. And lets face it if people are ok playing iOS games, they will be more than ok playing with something 2 or 3 times better than a PS3/Xbox360.

See what happened with the music industry, the masses did not wanted more quality, just more quantity at an affordable price, and MP3 became king.