Since the 360 and PS3 were released, there has been consistent hardware revisions. Historically, all consoles get cheaper to make as they progress in time from their launch. We look at the PS3 Slim as a watershed moment for the PS3 but that's because it looked so different. How many revisions were there before the PS3 Slim? Maybe 6 or so? There is even another Slim revision on the horizon. The cost savings generally comes with Die shrinks, etc. Sony was able to pull off a marketing exercise when they released the slim but at the same time perform a more than "normal" cost saving version of the PS3. At the end of the day there were minor audio enhancements, Bravia sync support, and maybe some other minor features. The PS3 Slim has to adhere to the same ridged standards for gaming and general use. The SKU is essentially a revision in a revised slim form factor.
The 360 has had about 4 motherboard revisions since release. A revised form factor is also a logical progression and will also result in a cost saving for production. If marketed correctly, it should result in a boost of sales assuming there is an accompanying price drop. I think it is the price drop that drives the sales and it is the revised "form factor" that just makes it easier to advertise that price drop, because it looks so different.
I think that since the PS3 slim was released, PS3 sales increased notably more due to the price drop at that same point in time, and because of the more consistent release of quality games for the system from roughly the time the Slim was released. The Slim, being so different in looks, marketed itself. Tech sites basically gave it free advertising. It was an easy thing to market.
Conclusion: Cost cutting is continuous, form factors are a one off during a gen cycle. Passing those price cuts to consumers is continuous and that it's just a tug-of-war. Sony will no doubt, at some point in time, again have a price cut to it's advantage.
So no, form factor hardware revisions that pass on costs to the consumer do not spell the death of the competition by any means, as each console has it's cycle.