For Sony, Microsoft, Nintendo and all third party publishers the next generation of consoles is a dark dangerous road ...
If you produce a console that is powerful enough to really impress gamers on visuals alone, the console manufacturers will have to take massive upfront losses to sell them at a price consumers will accept and third party publishers will risk their entire company "betting" on games that take full advantage of this hardware.
If you bet on innovation and produce a more modest console there is no certainty that gamers will buy into your concept, or that third party publishers will know how to produce good games for your system.
The middle ground isn't that safe either because, while there can be a synergy in the approach resulting in a system that was the best of both approaches, there is always the potential of either approach canceling the benefit of the other out; or worse, having the worst of both approaches.
Part of the reason I think the industry is in this "mess" is a result of things getting way out of hand in the previous generation. If Sony and Microsoft produced more modest systems and sold them at $300 without taking much of a loss, game development budgets wouldn't have increased as dramatically as they did and more third party publishers would be alive and healthy, and the performance increase that could be justified over those consoles would be more impressive to the typical gamer.
