Better is a subjective opinion. Art is very subjective, some people find Van Gogh extremely beautiful, others may think it is children's drawings. Same thing applies to perception on what games are better. For example, GTA IV was rendered at 720p for Xbox, and 600p for PS3, yet some people liked the PS3 version even with inferior graphics. CoD4 was rendered at 600p, but everyone loved the game. We are talking about some of the most popular games for the PS3 that are not really 'HD' in the strictest of sense. Making a game is certainly an art, and that is why there is to much subjectivity.
With regards to console sales, etc, Wii sales have not taken anything from PS2 sales. The majority of Wii sales are to new gamers. The majority of people buying Wii's are parents buying it for their children who were not even born when the PS2 came out. It has a brand name that is easily perceived. It has the DS crowd that will stick to the same brands, and it has Mario. Nintendo is synonymous with innocent gaming. Don't have to worry about M/R rated games, don't have to worry about killing blood etc (generalization).
Xbox has been labeled (the original Xbox) as a hard core gamers console. 1st console with on-line gaming, and a flagship game in Halo that appeals (ed) to hard core FPS gamers. With Xbox 360, the launch of Gears of War perpetuated that notion, of hard core, nasty, ultra-violent gaming, and the crowd of loud mouth, tea bagging, head banging, gamers just multiplied. Even on this forum, people still ignorantly associate Xbox 360 as a FPS machine, when it has more games in every single genre than the PS3 (from family games, arcade games, RTS games, RPG games, dance games, sports games, racing games, etc). Sure, there may be less Japanese games, but with the risk of sounding arrogant, who cares. Japanese console sales and software sales for HD consoles, is such a small percentage of the whole.
The PS3, was pricey at launch, and Sony was arrogant to assume that they would dominate this generation as well. Instead of buying PS3's people bought Wii's because it was half the price, and the gimmicky wand was appealing to casual gamers. Similarly PSN infrastructure was a joke at the beginning but has since caught up. The result is similar to the apple effect. People buy I-phones blindly. There may be better devices, both in hardware and software, but the ergonomics, and pedigree makes it a blind buy. If your friend has an i-phone, and they are happy with it, it instantly becomes a blind buy it does not matter if it does not have flash, or if your are 'stuck' with i-tunes, or if you are restricted to a carrier, people still buy it.
The Xbox is similar. I will not argue with you whether one is 'technically' better than the other (because that can be a point of debate), but the fact still remains that if someone wanted to play CoD: Black ops (for example), the cost to play the game this Christmas will be $100 less for the Xbox. Forget about the long term costs of gold, or wanting to watch an occasional blu-ray movie, etc, because people do not care (because if they did, they would not spend $30/month for a data plan for their smart phone, and then $20/mo for unlimited text messaging, on top of the monthly phone charges. The $4/month for Gold is a drop in a hat compared to cell phone charges). People want to play what their friends play.
Lastly there are regional differences, Japanese historically do not buy American products, certainly not American cars and definitely not American electronics. The only product that has made headway is Apple, but barely. Europeans tend to carry an anti-American attitude, and thus when given a choice will not buy an American product if something equivalent is available. Great Britain is different from the rest of Europe. Americans buy what is trendy, and what is at a reasonable price. They buy Xbox 360 > PS3, because the perceived value is better. They buy tons of Nintendo products, and have bought tons of Sony products over the years, so discrimination is not a deciding factor for buying things (unlike in other regions). Also, gaming preferences are different. 'Westerners' like shooters, fast action, games, RPGs, RTS games (inculding PC games, like Warcraft, Starcraft, etc). Everyone like sports games (but just different sports games). Japanese like their fantasy RPG's.
At the end, despite non-Americans disliking the dominance of pro-American gaming industry, we buy games in America, and we buy a lot of them. Console specific attach rates per region favor America 2:1. Thus for every console sold in America, its equivalent to 2 consoles sold elsewhere. Thus games are tailored towards Americans, and the preferred gaming console in America is the Xbox, and thus the lead console for game design , etc, is the Xbox, which continues to perpetuate the console sales. MS has done a wonderful job marketing the Xbox, and has done a remarkable job trying to increase its appeal (like with Kinect).
I used to get bothered when PS3 people did not support games like Orange Box, or Bioshock, which are probably some of the best games out there this generation, but then I realized that the demographics of people buying the consoles are probably different enough. Even games like UT3, should have rocked on the PS3 (especially when initially exclusive) but didn't. Based on history, I suspect that Mass Effect 2 is not going to sell well on PS3 (comparatively). Its just a function of demographics and gaming preferences.
With all this being said, this generation so far has been fabulous, with outstanding games on every console, and accessibility of more games on each console. It may be a pipe dream, but it is quite possible that in a generation or 2, unique consoles might be a thing of the past, and Sony/MS/Nintendo may have slight difference in hardware, but a unified interface will make gaming more common (save a few console specific titles like Mario/Halo/GT which could stay unique).
