I think people assume that a console manufacturer has to kill off their previous console when they release a new one, and I think we may have hit a point in time where console manufacturers try to have a longer transition period where both consoles co-exist.
I could be wrong but I expect Microsoft may try to produce a new console where they can release a game for the XBox 360 with "Low Detail" settings and it would have a resoultion of 720p @30fps, and it could be (easily) released for their next system at "High Detail" settings and would have a resolution of 1080p @60fps while playing on the same XBox live servers as XBox 360 players.
The reason for this is that third party publishers are going to be very reluctant to finance games at the budget required for HD games today on a system without an established userbase.
Now, I don't think that "Enhanced" XBox 360 games would be the peak of the system's abilities, but I wouldn't expect a lot of focus (from most developers) on pushing the system until it had been on the market for 18 to 24 months and had a userbase in excess of 20 Million users.
