@Jayderyu
The HD4870 is not a particularly large chip and isn't running at a particularly high temperature, and is produced using a 55nm process. We're about 3 to 4 years away from the next generation of consoles being released, which means that we should expect (roughly) 4 times the performance from most processors at a similar manufacturing cost. To put this timeframe into perspective, 3 to 4 years ago the "Amazing" graphics cards were the Radeon X800, Radeon X1800, Geforce 6800 and Geforce 7800; all of these graphics cards can be picked up for under $100 and are dramatically less powerful than the high end graphics cards that are available today.
On top of that, memory is not that big of an issue and (most) consoles tend to have somewhere between 1 and 2 times the ammount of memory that would be associated with a graphics card that has a similar GPU on it; at the current rate of growth, I would expect a next generation console to have between 2 and 4 Gigabytes of memory in it which will look tiny compared to the 8 to 16 Gigabytes that may be in some PCs at the time. Part of the reason why a PC needs more memory is because of the operating system, but (in my opinion) the main reason you need so much memory for PC games is that you don't have anywhere near to the level of control over your memory in a PC that you have on a console (and PC requirements have to be overly high to compensate for the ammount of crap running in the background).
As for the consern about development costs in the next generation ... I do expect to see a rise in the development costs of big-budget next generation games but not one of the same magnitude as this generation mainly because most developers will be using the same techniques as they're already using on the HD consoles, and producing a very similar quantity of content to populate the environment. On top of that, I expect one of the more major consequences of the Wii's success is that development costs of games on average will remain (much) lower than what most PS3 and XBox 360 games currently cost because developers are not going to focus on graphics as much; I wouldn't be that surprised to see a large portion (maybe even the majority) of games to not use shader effects at all (which would result in a lot of games looking like high detailed versions of Wii games) to keep costs down.
