Well, I think the big difference is that you can interact with this 3-D world accurately, otherwise it would be just a novelty. I don't think Sega had Motion Plus

As alluded too in this thread, I think both Sony and Microsoft will aim to produce a console that makes games look as good as they can at 1080p and 60FPS.

Realistically, there is a limit to how good a game can look at any given resolution and framerate.

Though I don't think it is quite there, the argument can be made that the Wii attempted to reach this limit for the 480p resolution.

Wrong. Playstation 3 and X360 is not even close to have the power to be able to make graphics look as good as they can on a 480P resolution, and Wii is miles and miles away. I don't think the next generation of consoles will come close either.

Watch a movie like Monster's Inc. or Beowulf on a 480P DVD. When the consoles can do that real-time in 480P resolution we might be talking. That is still years away.

The resolution means less than a lot of people seem to think, a good looking PS3/360 game would still look tons better than Wii game if you downscaled it to 480P. PC games have been running at HD resolution or higher for a decade, but don't tell me Quake 1 running at 1600x1200 looks anything like current generation games.

Couldnt we change this graph to, what can we expect from gameplay in 2012? I'm not over bothered about graphics

 I am at a loss as to how to make trend graph for gameplay as this is something not easily quantified into number.  If you have an idea I am willing to listen.

 True! Current gen games like Gears and Kill Zone are still "miles and miles" away in not just graphicly, but in physics, AI, .... Beside the movies you mentioned, I can name a few more for reference: Lord of the Rings, Star Wars,  Jurasic Park.  The CG in these movies are everywhere but you can't tell it's CG unless you start looking carefully.   When our consoles can do this stuff in real time, then I am happy.  We maybe decades away however. 

Well, if you just look at how hardware has improved over the past several decades a "Wii Like" system that launched in 4 years would probably be able to play a game like Crysis at medium detail at a resolution of 720p with a steady framerate of 60fps ... The reason for this expectation is simple, the top of the line GPU from the end of 2008 will be outperformed by a mid-line GPU at the end of 2009, which will be similar to a low end GPU from 2010, which will be similar to a mid-level laptop GPU in 2011, and a low-level laptop GPU in 2012.

Edit: I think you should expect the console manufacturers to all look for more powerful hardware than this, but I wouldn't expect them to really be pushing the limits like Sony or Microsoft did in this generation.

Well said. I'm amazed how many people haven't realized this. There are so many factors that make up good grafix in games today - shaders, texture quality, texture filtering, bumb mapping, lighting & shadows etc, while the most famous one - resolution - simply is just one of them.

There are a number of risks that MS and Sony will need to carefully weight if they choose to play safe and not push performance limits:

1) Nintendo may sneak up and push performance limit this time.
This is a disaster for both MS and Sony because the Wii brand is already as formidable as it is.  If Wii3 is advertised as the most powerful machine along with all the other things associate with the previous Wiis, how will MS and Sony to make their system look good?  The one saving grace for MS and Sony is that if Nintendo plan to push limit, they will know about it well in advance because Nintendo will have to contract outsiders to design the gut of the machine for them.  In this industry if you don't keep your design in house, everyone else will find out.

2) Either MS or Sony still want to push limit, thereby forcing the other to keep up.

3) It won't be easy to invent something that will "wow" people like the Wiimote
If MS or Sony don't push the limit, they will need to invent something that will make consumer say ah, that's awesome.  I got to have it.  If they do a Wii controler, it won't have the same effect.  It has been done already.  It had lost its wow factor.   Idealy they need something that take people attention away from Nintendo.  And they can not do that if they just copy Nintendo.

Some people may argue what Nintendo did was really pushing the limit of user interaction.   So if MS and Sony want to compete in the same way, they will need to push this type of limit much further.

Those are good theories. What do you think will happen?