Recently the graphics on PS3 (Uncharted 2, GOW 3) has started to separate itself from Xbox360.  EA Medal of Honor is going to "max out" on PS3 then be ported over to XBox360.  Eventually, just as Xbox version was consistently better than PS2 at the end of that generation, the PS3 version will substantially be better than the Xbox360 ports.  

when it has a bigger install base than the 360 and is cheaper to make games for it.

What I would like to know is what multiplatform games in the past have used PS3 as their lead development platform. I recall that Mirror's Edge, Medel of Honor, and Vanquish developers have used PS3 as their lead console and I assume Devil May Cry 4, Tekken 6, and Final Fantasy XIII all apply as well since they were originally announced as PS3 exclusives.

It's not like the install base is that much bigger anymore though compared to the X360. And the PS3 is at 33 million unlike before, with 33 million owners you can get a lot of sales even if the games exclusive instead of multiplat. The userbase of the PS3 is at a pretty safe place right now for developers to trust it and put exclusives on it. And how is it cheaper to make a game on the X360 first then port to PS3? If anything it'd be more expensive because it's harder to port a X360 game to the PS3 then it is PS3 to X360. There would be lots of bugs and glitches on the PS3 version and would take a long time to fix it all which cost more money, or they can finish it fast and make a poor quality/buggy/glitched version on the PS3 and get less sales because of that.

So if they make it on the PS3 first (and no one give me that excuse that the PS3 is hard to develop for it's not 2007, sure the X360 might be easier but I highly doubt the PS3 is that complicated to make games on anymore) they can easily port it to the X360. Really this is for the best, instead of getting two decent looking games you can have one really good looking game and another decent one.

We're already starting to see it happen: Sonic Racing, FF13, Medal of Honour etc.

The graphics are exactly the same, its in your head that PS3 has better graphics.

Uncharted 2 , Killzone 2, GOW 3 are way ahead of anything on the 360.

Considering the Xbox 360 has a larger install base and it is easier to develop for, it would say not in the near future.

(1) I expect most PS3/X360 games to lead on PS3 by the end of the year (EA already lead on PS3 for everything I believe).
(2) Most X360 ports will be a similar standard to the PS3 version, just as most PS3 ports are a similar standard to the PS3 version.
(3) You'll continue to get the odd stinky port in both directions.

I can see more development being moved towards the PS3 since Ps3 ports to 360 run better than 360 to PS3.

As mentioned above EA already uses the ps3 as the lead platform because it is more cost effective to build on the PS3 and port to the 360.

However the OP states that the PS3 version will be substantially better, which just won't be the case.  If anything differences will be minimal and in some cases game will still run better on the 360.