They still made a profit and millions of gamers happy with there amazing software sales and xbox live service.

i agree with this

When the software on the machine stops exciting people to buy the machine. With strategic modifiers of course.

Sony will be the first to release a new console, because there is simply nothing to do with the PS3. Its current popularity, (or the lack of it,) don't indicate a decent longevity, and nothing suggests a radical change in that. I would say late 2010, early 2011 for them.

Microsoft might keep the 360 around for a bit longer, based on its slightly better sales, and profitability. It might be sometimes in 2011.

The Wiis longevity is depending on the success of the M+
If it will be successful, and used properly, it will have the effect of a system relaunch, and lengthen its life expectancy with a few years, maybe even until 2012-13.
If not, it will have to be replaced around the same time as the other consoles.

Sony's not going to release a new console next year. I honestly doubt they've even got significant work done on it. They're still reeling in pain from the PS3. If this generation has taught us anything, it's that relentlesslly pushing forward with new technology before it's ready leads to monetary losses (Sony), and broken hardware (MS), while mostly last-gen technology laughs all the way to the bank (Nintendo).

Both Sony and Microsoft have lost incredible amounts of money this generation. Neither is going to launch another system until they at least recoup enough of their losses, and feel the next generation will bring profits, not horrible, horrible pain. That and last I saw, only around 30% of consumers had an HDTV, and about half of those don't get any HD content on it. I wouldn't be surprised if the real number is actually lower. My grandmother, among others, thinks she has an HDTV, but really has some crappy 480i CRT thing that looks like it was bought in the late 90's. (And no, I didn't have the heart to tell her the truth.)

I honestly don't think many people want another console generation to come, and the success of the Wii shows that, for many (if not most people) last generation was at least close to "good enough".

I agree that the graphics race is over, but this doesn't mean that they won't have to release any new hardware at all. The Wii shows that, while they didn't make a serious graphical update, they needed to innovate, and release a new console, and not just a GamecubeMotion upgrade, to get a new audience.

Other than motion controls, various interface innovations are realistic possibilities. Cloud computing, like OnLive, is another possible direction. (I think that is especially appealing for Microsoft)

Microsoft lost a lot of money in the last generation, and it didn't stop them from discontinuing the xbox after 4 years. Because even if they wanted to, they had no chance to get back their money with it. 

There won't be a huge Return of the Ps3. Let's say that they are breaking even about now. In this case, a $100 price cut would set them back around a year on their Quest for Profitability, and when they would be finally able to produce PS3 for significantly less than $300, about a year from now, they would be a similar situation than now, and forced to cut price to $200. 

IF the 10 year plan would work, and they would have a chance to sell for $200 for five years after that, they could fix a fragment of their losses. But it was planned with the expectation of a PS2-style long momentum, that won't happen, obviously.

This isn't an easy question to answer because there are dozens of factors to take into consideration ... The simplest way to put it is that they release a new console when they think that their medium to long term strategy depends on new hardware to maintain or increase sales.

Quite often the market leader is "Forced" to release a new console because their competition releases a console and they can not let that console build support (for fear of losing their market position); and often the trailing consoles are forced to release a new console because of poor sales or manufacturing difficulty. Microsoft released the XBox 360 because they couldn't manufacture the XBox anymore which triggered Sony to release the PS3; Sega released the Dreamcast because the Saturn's poor sales prevented them from being a profitable company which triggered Sony to release the PS2; and Sony released the PSP to take over the handheld market and Nintendo responded with the Nintendo DS.

I can't think of any generation which was started by the market leading console manufacturer, but every time the successor to the market leading console has been given a head start they have dominated the generation.

Pretty much. I think the classic example is NES vs Genesis. Except in Brazil, the Master System was going nowhere, so Sega released the Mega Drive/Genesis in 1989. It started eating into Nintendo's market, and forced Nintendo to release the SNES, which took, IIRC, 2 years.  Although the SNES eventually overtook the Genesis, IIRC, Sega spent the two years building up a significant lead, cutting into NES sales, and was the leader for most of the 16-bit era.

DS vs PSP I think is another great example. I assume Nintendo was working on the DS before the PSP announcement, but Sony pretty much forced their hand by threatening to take over the portable market, probably having them release the DS before they intended, ironically, this probably helped Nintendo in the long run. I doubt the "Game Boy" name could ever appeal to adults as well as the DS has, and we all know how the DS influenced the Wii.