There are a lot of reasons (that are not related to getting more processing power out of systems) that games were dramatically improved over the Playstation and PS2's lifespan ...

Back when the Playstation was first released few developers had any experience with 3D graphics. This meant that they choose very poor data structures, produced generally unoptimized code, and were "wasteful" with their 3D models and textures; if you made these same mistakes on a PS3 game you would have difficulty producing a game that looked better than a PS2 game. The GDC became a very popular forum for developers to share information, coding practices improved as did artists skill and the overall product improved greatly.

With the PS2 developers started out producing their own engines and tools (for the most part) which meant that an adequate programmer who is overworked had the task of producing high performance code along with dozens of other tasks, and artists were expected to use buggy programs to produce high quality artistic assets without wasting resources; there were tons of bugs and bottlenecks in the code and artists had a great deal of difficulty producing good assets. Through out the generation the use of middleware which was produced by experts who are focused on producing high performance and high quality systems, along with the move towards common art packages (because of importers that came with the middleware) dramatically improved the overall quality of the products produced.

In this generation they're already working with expert produced highly optimized middleware and high quality tools, the artists are professionally trained and have years of experience. The next logical step in the industry is to licence large libraries of 3D graphical assets (tables, chairs, and other "decorative" elements) or to create large teams of artists in less expensive markets (like China or Columbia). It seems unlikely that you're really going to see dramatic improvements in the quality of graphics produced, and most of the optimization that is done will have the effect of improving the framerate or resolution while producing graphics similar to the best of what is already produced.

 No. You're just using enough words.

360 AND THE PS3 SUCKS!!!    

-- See, more than 4 words and I'm in the clear. 

Yeah, the PSX was very simple to dev. That's why it got so popular, esp for 3-D. It was the Saturn that was a bitch to program 3-D for.

When the Playstation 2 was new, all the talk was "so hard to DEVELOP. Only the richest companies will be able to use its true POWER." And yeah. A year later you had two more-powerful systems come out, hahaha.

I think the 3 will be closer to the reality of "Not many devs can use its full power," but it won't really matter. Devs will use each other's tricks and build offa each other's work.

For my two cents, I'm not impressed at all by the style of "next-gen" graphics -- shiny/realistic = boring. I see the same polygonal stick figures running around when I see new games as I did last gen. I don't think this gen is a huge upgrade over the previous in terms of power, anyway. I think design is a lot more interesting (world of NiGHTS compared to Uncharted).

To make a point to the OP.

In terms of power it used to be really easy to guage with consoles.

PS1 was inferior in power to N64

PS2 was inferior in power to GC and XBOX

With this gen, Wii aside, It's harder to tell.
Best way to guage is on exclusives.
People can rant and rave about specs of 360 and PS3, both have points over the other.

But companies usually release all their top ames for the system that sells the most software. Hence PS1, and PS2 and 360.

If you mean useless nonproduction-worthy libraries then yes, I agree.

Some flaws in your theory;

1) Multiplatform games looked better on the Gamecube because that was the stronger system.

2) Artwork can make a last-gen game look better than some next-gen ones (Okami, Re4, Zelda Windwaker etc...)

sound pretty logical

multiplatform games now are based on xbox360 version
and probably in the future on the ps3 version

 If PS3 can keep bashing X360 in sales and come closer than the answer is yes!...

And i guess PS3 can do a little more than the X360 (but with great artwork and smart programming one wont notice the difference).