Naughty Dog was recently caught stating: "We have no limits" on the PS3
http://www.ripten.com/2010/12/18/naughty-dog-we-have-no-limits-on-the-ps3/
I think this requires some clarification.
My take: With regard to game world complexity the Cell's processing capabilities, the PSN and Blu-Ray's capacity provide an amazing amount of freedom to developers.
However there certainly are hardware limitations on any console. For the PS3 for example the amount of memory is a limitation which cannot be upgraded upon, but that's a moving target (as are the amount leftover resources to tap into on the RSX and Cell processor) as the top developers on consoles turn to ever more efficient development approaches, code optimisations and better streaming methods from high capacity Blu-Ray discs and harddrives.
The Neo Geo and Amiga had tiny memory requirements compared to PC games of their time despite providing vastly superior visuals and audio, this was due to smart coding practises as well as due to the hardware designs which allowed data to stream around quickly as well as other technical advantages.
