I for one don't really like buying a system when it's new, and I'm quite happy to stick by my old systems. I've mentioned this in the past, but I really bought the Wii too soon, when I was still using my PS2 and was and still am happy to play my PS2. When they're cheap enough though, I eventually make the transition. I'll do that with the PS3, just wait.
People always want new things. So even if we reach the point where graphics look real, we'll soon expect it in 3D and all sorts of things. Instead of 60fps we'll want 120fps (Though I don't the eye really detects the difference). And as our TVs get larger, we'll want Ultra High Definition - 7680 × 4320 pixels. http://en.wikipedia.org/wiki/Ultra_High_Definition_Video.
I think generations will get longer because eventually there may be little point in going from say the PS4 to the PS5 like you said, because the improvements may be too little if released to soon to warrant the purchase. But, we always manage to come up with some new technology all the time that everyone wants, so who knows.








