I think people who expect a magical reduction in development cost later in this generation are in for a disapointment ...
The facts of the matter is that the cost to develop a game is directly related to the number of developers you have working on the game, and you need more (and higher quality) graphical assets to produce an XBox 360/PS3 game which dramatically increases the size of your development team. Back on the PS2/XBox/Gamecube we were (typically) hearing of games which required 40 to 60 developers who were working 12 to 18 months to develop a game, and today we are hearing of 100 to 200 person development teams working 18 months to 3 years to complete an XBox 360 or PS3 game; even though the tools that exist today can be improved dramatically, these developers workload will not suddenly disapear in the near future when we get a new version of XSI or Photoshop.
