every word a terrible assumption on your part and in turn invalidates your analysis.

Developers can say all they want and that doesn't mean they'll bring those things to the table. It's all PR talk.

Interesting theory. If what you say is true, that consumers are going to stick with the PS3 & 360 to play their games, then how would you explain the growing lack of interest for the PS3 & 360? Last year saw a huge drop in software sales and this year will be even worse. It's especially bad for new IPs which at this point in time have little chance to be successful unless it's associated with a well-known brand.

These signs suggest that consumers are definitely losing interest in the PS3 & 360. This loss of interest could be explained by one of two explanations: (1) This is a new and permanent loss as a result of general apathy for home console gaming; or (2) this is just a cyclical loss and interest will regain with next gen consoles. If it's the former, then the PS4 & 720 will be killed, but because of a dying market, not 3rd parties supporting the PS3 & 360. If it's the latter, then the PS4 & 720 will reignite interest in gaming.

I would assume you don't agree with these explanations; both of them contradicts your claim that consumers & developers will flock to the PS3 & 360 over the PS4/720. So what is your explanation for the diminished interest in the PS3 & 360? I personally think the loss of interest in the PS3 & 360 is a testament to the fact that consumers are interested in new consoles, and will embrace the PS4 & 720, especially if there's huge improvements in OS, functionality, motion control, and other features.

EDIT: Pokoko makes a good point about RAM. There has actually been quite a few complaints about limited RAM for current consoles. In fact, many games are faulted as a result of it. I think it's likely that developers will at least use more RAM than what the current generation allows. I'm personally looking forward to games by developers like Rockstar or Bethesda.

Halo CE was huge as local MP game, I'm sure many people to this day like to play 4p local splitscreen. With system link you can play with 16 players and only need 4 consoles and 4 games.
LAN parties are still a big event for PC gamers, so why shouldn't it be for console gamers ? I for one always liked and still like local MP.

I've also edited my last post and added that more CPU intense games like Total War and Starcraft 2 would theoretically be possible. Also games with lots of simulations such as manager games.

Adding to the AI part. Imagine that every pedestrian in GTA has it's own AI and they would not respawn. You could track every single person in the game and watch them drive, park their car and walk on the pavement. And if you kill them, they're dead - forever. You could kill all cops, thus giving you an easier time to do your crimes. You can kill certain gang members and they would be forever gone from their home districts. Some of the people who watched you committing crimes may run away or attack you the next time they see you.

Skyrim already does some parts of this, but only merchants and quest givers have detailed daily routines and they usually "forget" what crimes you committed after a few days.

I can't imagine any developers would hang onto the RAM constraints of the 360/PS3 when they can work with quadruple that, at the least. Most of the games designed for next gen consoles won't have a prayer of running on this gen devices. They're building these titles on the new dev kits, not on 360/PS3 dev kits. All the new IP will be next gen exclusive--if they aren't, then those games will look like crap compared to games from other publishers.

How will Activision looks if EA's games are far and away superior, or vice versa? We might see some games in development now do as you're suggesting, but no one wants to be left behind in quality. If we have a Battlefield in 2014 that absolutely and completely blows away CoD, how is that going to look? Or the same for any major franchise out there? I can't see that kind of situation lasting more than a year, and that's only with smaller developers and big franchises. New IP are going to be next gen exclusives.

Mathematically and technically you're wrong.  One, you don't know the throughput and bandwidth of the processors.  But all things being equal, a 1.6GHz octi-core CPU has more processing power than a dual-core 3.3GHz CPU.   if each of the 8 cores did 1.6 GFlops (I know CPU speed and CPU frequency have nothing to do with each other) that would be 12.8GFlops of processing power compared to just 6.6 GFlops.  Likewise, if that 8 - core CPU has 4 hardware threads as opposed to two, you now have essentially the capability of a 32 core CPU compared to a quad core CPU giving programmers the ability to have 32 simultaneous instructions running instead of just four.

You are mistaken if you think frequency is the indicator of CPU speed.  There are several factors that can and will contribute to the performance of a CPU, especially if it's an SOC.

1. We see here that the 8-core FX-8350 running at 4.0GHz has equal gaming performance with the dual-core i3-3225 that is what I would recommend for a reasonably low budget gaming PC. At 1.6GHz the performance is therefore 40% of a desktop dual-core.

2. AMD does not and will not have a faster gaming CPU on the market than the FX-8350 until at least 2014. Therefore the FX-8350 is an upper bound of what's possible in next-gen consoles, and since it's $200 even that is unlikely.

3. AMD does not have multi-threading tech. Even if it did, on current PC CPUs, the second thread adds about 5% to performance and subsequent threads do much less.

You're incorrectly assuming an AMD 'core' and an Intel (PC) 'core' are worth the same amount.

I can agree with what you are saying, but will that make sense financially? Most people are fine with the graphics of CoD and Battlefield (we can deduce that from the sales), they already have the console and they would just have to pay $60 for those games. So why would devs and publishers invest in a big franchise for a console with limited install base? Like I said before ignoring a 140m install base will not be easy for 3rd party developers (especially the big games with a high budget) even with moneyhat from MS or Sony. 

I can't see Activision risking a 10m+ sales of game for what's most likely going to be a lot lower than that.

Ah yes that reminds me of being able to do 64 (or more) players for Battlefield games.

Likewise racing simulators with more than 20 AI controlled cars etc.

I'm fine with Activision and EA releasing their games on both new and current gen consoles. They should just either develop them on next gen consoles and port them to last gen ones or use the PC version to port it to next gen consoles.
Increasing the resolution, framerate and adding more AA etc. doesn't cost any money.

We'd be then able to see which versions take off and which don't.