My personal feeling is the next XBox will still dominate with hardcore players.
The current 360 can run decent versions of Crysis 2, Battlefield 3, The Witcher, etc. Yes, they're not PC perfect by any means, but to the average consumer they're close enough.
The "720" even if those leaked specs are true would be several times more powerful than a 360 and be able to give you some pretty damn high end visuals. I think what MS is banking on more than anything is that most developers really can't afford to make games that go beyond a certain threshold of visual complexity.
Though honestly I wouldn't put it past MS to simply bump up their GPU spec once they get more details on the PS4. They can afford a $10-$20 loss easy on some launch units, Sony is much, much more trouble financially and MS did bump the RAM in the 360 later on. If developers are yelling at MS to go more powerful, I tend to think they will listen.
