I think this will be the last 'arms race' generation of consoles trying to push their specifications into the stratosphere. It totally destroyed the Playstations marketshare, and stymied the 360's for a few years (till it dropped to a reasonable price).
From now on, I think we'll see upgrades that aren't pushing 10x the pixel fill rates that we've seen over the past 2 generations...Much more scaled down (better than the GC>Wii transition, but nowhere near the XB>360 or PS2>3).
Instead, we'll see MS/Sony really work on enticing developers too build for their systems using much more robust middleware systems to allow for great games at affordable development prices. The big issue is that games are too expensive to make 'good' for such systems, because there's just too much grunt work involved. Microsoft or Sony will work on producing Unreal Engine-esque systems themselves, and woo developers with the promise of cheap development costs.
Ultimately, console companies will work to create a better financial environment for themselves, and their developers. I don't get the whole 'there is no money in it' - bull! It's a $40b industry, and some companies are making a killing! The problem is that many have failed in the HD transition, and they'll learn from this generation. But technology will always progress, and companies will take advantage of it.
I expect another generation around 2012-2013 with more robust integration that all the companies struck out on, and no console will be above $300 at launch...But preferably $200.
Back from the dead, I'm afraid.
