IMO there's still headroom, but game engine design is about optimal. You can still perform assembler optimisations, a launch game like Kameo already used up 85% of CPU cycles. PS3 games will grow much faster and further, there are still a lot of game engine design gains to be made on the PS3 (moving PPE and RSX workload onto the Cell's SPUs). The PS3 just has a lot more horse power under the hood.
Also DVD is getting way too small (texture, audio quality sacrifices and/or game length/diversity sacrifices) and if your game has to run without a harddrive that also limits some potential (I am thinking about caching rather than install).
I thought Halo 3 would push the 360 near to its limits, but that was clearly not the case. I think Gears of War 2 will be that game.
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