There are a lot of reasons (that are not related to getting more processing power out of systems) that games were dramatically improved over the Playstation and PS2's lifespan ...
Back when the Playstation was first released few developers had any experience with 3D graphics. This meant that they choose very poor data structures, produced generally unoptimized code, and were "wasteful" with their 3D models and textures; if you made these same mistakes on a PS3 game you would have difficulty producing a game that looked better than a PS2 game. The GDC became a very popular forum for developers to share information, coding practices improved as did artists skill and the overall product improved greatly.
With the PS2 developers started out producing their own engines and tools (for the most part) which meant that an adequate programmer who is overworked had the task of producing high performance code along with dozens of other tasks, and artists were expected to use buggy programs to produce high quality artistic assets without wasting resources; there were tons of bugs and bottlenecks in the code and artists had a great deal of difficulty producing good assets. Through out the generation the use of middleware which was produced by experts who are focused on producing high performance and high quality systems, along with the move towards common art packages (because of importers that came with the middleware) dramatically improved the overall quality of the products produced.
In this generation they're already working with expert produced highly optimized middleware and high quality tools, the artists are professionally trained and have years of experience. The next logical step in the industry is to licence large libraries of 3D graphical assets (tables, chairs, and other "decorative" elements) or to create large teams of artists in less expensive markets (like China or Columbia). It seems unlikely that you're really going to see dramatic improvements in the quality of graphics produced, and most of the optimization that is done will have the effect of improving the framerate or resolution while producing graphics similar to the best of what is already produced.
