I don't think that Microsoft will try to push the limits of console performance at the cost of taking losses on the hardware and pushing the launch price beyond the means of the average consumer again ... but this is heavily related to there being no benefit from it.
Around the end of 2010 you will be able to buy a graphics card that can render a game like Crysis at above 1080p at a framerate around 120fps at ultra-high detail; and by the end of 2012 hardware that can perform in this range will be very inexpensive and will use (fairly) little energy. When you start to consider the visuals that will be possible on this hardware at 30fps or 60fps it will be difficult to make a meaningful improvement on graphics beyond this level without 100 times the processing power.
