I extremely doubt it. The 720 and PS4 will probably be 5 to 10 times more powerful than the Wii U.

Highly doubtful. At best were looking at 2-4 times more powerful if we go by the speculated rumours for each system.

That would mean they aren't much stronger than they are right now, which I highly doubt.

IF PIGS COULD FLY...

If PS720 were only on par with Wii U Nintendo would win the next gen, hands down - because then, it would all come down to 1st party support, and none sell like Nintendo does. But I don't see this happening.

It may help the industry it may not , someone else may jumping or not , but for as long that thier exsit a competive drive to out do ,do more go beyond or overachivie .
No one persons or coprations will settle for average or on par with others . So no i don't see MS / PS making systems that on par with the compettion

I think people expecting a big jump in image quality from Sony and Microsoft are going to be disappointed ...

First off, neither Sony or Microsoft are going to be willing (or in Sony's case able) to take the same kind of losses with their next systems that they took with the PS3 and XBox 360. I could be wrong but I suspect that both Sony and Microsoft are going to have losses that are in the $50 to $100 range (or lower) rather than the $150 to $200+ that they had in the previous generation.

Secondly, I think both Sony and Microsoft will be looking to enhance gameplay using a new user-interface/controller (something like Kinect or a touch-screen controller), which will likely add $50 to $100 to the manufacturing cost of the system.

Finally, they will want to keep the price of the system to consumers at a reasonable level ($400) to encourage people to buy it.

When you add these three things together, compared to the XBox 360 at launch their next system has to have a $200+ reduction in manufacturing cost, and the next Playstation has to have a $400+ reduction in manufacturing cost compared to the PS3, which will translate into a very large step back in how advanced these systems are.

If the XBox 360 or PS3 were launched with similar constraints I would expect that they would have had about 1/4 or 1/2 their current processing power. At 480p these systems would be able to maintain the improvements people associate with these consoles, but at HD resolutions the visual improvement would be far more modest. In a similar fashion, at 720p the PS4 and "XBox 720" will likely have many visual improvements but will not be able to improve visuals signficiantly while rendering at 1080p@60fps

There will be some kind of leap even if the systems are geared to 'casuals'. That being said I don't think a lot of people actually care if they did have focus on new control inputs. There is only a small group of purists who refuse to accept it.

They are hyping xbox to no end despite having strong chances it will heavily focus on kinect so I don't see why they wouldn't accept it.

This would be only great for Nintendo as it would mean that they would get equal support from 3rd parties. The way I see it Nintendo have shot themselves in the foot by releasing a console which while using a relatively modern architecture is comparable to the 360/PS3 in performance.

What that means is that once Microsoft and Sony release significantly more powerful consoles the 3rd party developers will design multi platform engines that run on modern PC's as well as PS4/720. As far as rising costs go that's more a natural result of inflation and not more modern hardware. The fact that this time around the consoles will be less exotic in design, in particular Sony's console will mean that it will be significantly easier and hence cheaper to port games from PC and vice versa.

@OP

Your premise is highly unlikely to happen as both Microsoft and Sony will want to distance themselves from Nintendo and they have a great oppurtunity to do so. As they are not only going to be releasing likely more expensive consoles but also releasing them at least a year after the Wii U which means they will get more performance per dollar spent.

To be honest if they were to release consoles in the power range of the Wii U then it makes no sense to release consoles at all and they should just milk their current ones. Of course technology is advancing and we have modern engines like Unreal engine 4 and others that will require more robust consoles.

Also note that many current gen console games already have superb assets which have been downscaled in order to get acceptable frame rates that make the games playable. Even at the start of the PS4/720 era you will see this reflected in their games let alone later on when in house engines start to mature over the next couple of years.

Then Nintendo will be the main console this gen amongst core gamers, I don't see this happening though.