Although both XBox 360 and PS3 games look great on ordinary sets as well, some people may think they really need a HDTV to notice the difference, but that's not really the case. The XBox 360 and PS3 allow for far more complex games as well, beyond just the better HD graphics, for instance better AI, bigger more complex worlds, better physics, etc. It's somewhat of a marketing problem, Sony obviously would like to push HDTV sales.
Although the Nintendo Wii is also competing with the Playstation 2 hurting its hardware sales, I think the system also helps the PS2 platform indirectly and vice versa for the long run as it may make sense to create games which can be ported between the two lower specced systems. So I think the Wii may extend the lifecspan of the PS2 with regard to games development.
