That's a good question, I think that all the current consoles will have a 5 year life span, so X Box 720 will come out a year before Wii 2 and PS4.

You see, Hardware manufacturers also have to think about current projects, the amount of support, etc. when trying to decide when new product should launch. Now Microsoft moreso than Sony or Nintendo have shown that they will do what they want when they want. I think that they would still give the life of Xbox another year or 2 before entering the market with another console.

I think you make very good points about this seeming like an intermediate step since 720p or 1080i are just stepping stones to 1080p, but the adoption rate of HD is not as great as was hoped. This will warrant the existence of this generation. I do think that Nintendo will jump to at least 720p next gen along with whatever crazy things they have up their sleeves. There is also an unpredictable factor: 3D holographic projection. Will this technology catch on in time for the end of this generation or will it be pushed back another 5 yrs?

Lots of questions this generation in sales, placement, target audiences, technology, etc. We won't know till it happens.

MS jumped the gun by launching the 360 early because they had nothing to lose at that point. The original Xbox was never going to catch up to the PS2 and sales were declining rapidly. At this point, the 360 appears to be doing quite well and MS doesn't have any reason to kick it to the curb. As such, I think we'll continue to see updates here and there, but no major overhaul (i.e. Xbox 3/720) until 2011 at the earliest.

If MS does try to trump Sony with an early system launch (still 2011), I'd expect Sony to match MS with a PS4 that is a faster clocked, multi-processor version of the PS3 (i.e. do something similar to what Nintendo did with the transition from GC to Wii). In fact, I expect all of the major consoles to get similar upgrades. The 720 will just be a faster version of the 360 with motion controls, and the Wii 2 will just be a faster Wii with a couple of extra tricks up its sleeves.