Yea, this is what I see too. But the problem is that’s not enough. Never has a console come out where the improvements were “slightly better”.
In the PC world, you can release a $500 video card that’s only 50%, or even 20%, better then the last one, and it will sell. But that’s a different market then the console world.
I don’t see a system that does not blow the last generation away selling for $500, and I don’t see what can be done to make that system. Maybe a Cable Modem/router/Audio Receiver built in or something.
Evolutionary, incremental improvement has always been the standard between console generations, and they've always sold. Really, the only "revolutionary" changes were the leap from 2D to 3D, and the Wii's control scheme.
There's plenty of room for improvement simply in things like graphics and physics, and if that's all that changes, the next gen will still do just fine (keep in mind the change won't be 20-50%, but more like 1,000-3,000%). I have a feeling we're going to see a lot of advancements in control/input methods though. For instance, a system that combines the technologies of the EyeToy and the Wii remote to create live motion capture.
The next gen will be just as exciting as every previous one has been.