I know that right now, 8th generation hardware is all specualtion, but for the sake of topic let's assume that the recent PS4 rumors are even slightly true. This means Sony are aiming to go for another high-end machine, capable of astonishing techonological feats compared to the current generation of consoles, and not the Wii-is-slightly-stronger-than-its-predecessor model that Nintendo opted for this generation.

With the cost of HD games already being high, the cost of making a game that lives up to the standard for this hypothetical PS4, would be immense.

What does this mean? It means fewer games will try to push the hardware, and fewer games will 'look good' in comparison to the graphical powerhouses that will no doubt still be around (but will also be fewer and further between).

So, will the PS4 crash and burn under the weight of huge production values that will not be made back? Or will this mean that the concept of a graphical standard will fade away?

I'm hoping for the latter. That ultimately, studios are free to go for whatever graphical standard they want, without their games being called ugly or dysfunctional. Maybe 60 FPS games will become the norm. Maybe no one really wants to deal with the amount of work in coping with all the detail that justifies 30 FPS over 60 FPS.

Ultimately, you'll still be able to have an ugly game, if for example the framerate is all over the place, or the artstyle is bland and uninteresting. But I am hoping for 60 FPS to become the norm, and for developers to have more freedom with the graphics. I don't want to encourage slack or products that feel like they lack polish because of this though.

I also think that middleware will be more important than ever before. Allowing for cost-effective ways to get more out of the hardware.

So, what do you think? Will the PS4 be crushed under the weight of investments that never see a profit for developers, or will we be stop putting as much emphasis on graphics altogether?

Yeah, that's my hope, too. I would be very glad to see a lot more games that look like, say, Earth Defense Force 2017 on the HD systems.

Come to think of it, EDF 2017 even had an atrocious framerate.

I want to be able to play a game that looks like Uncharted 2 with 4 player split-screen at 60 fps.

Like, think in Disgaea 3. It is a ultra-cheap game and low resolution graphics, but it isn't considered a game made by lazy people, it is considered an artistic choice.

But maybe in next-gen development costs go a little bit down, since the power7 is easier to program for and accepts traditional encoding.

at least KZ2 or U2 like graphics for lunch title with smooth frame rate and no downgrade of graphics in co-op and multiplayer.

i doubt games will be that much more expensive to make. i think that first generation of PS4/Xbox 3 games will look a lot like Crysis on buffed up PCs in 1080p and 60fps.
by the time ps4 will be released Cry Engine 3 that is made for current hd twins will be dirty cheap for developers so we will get a lot of games based on that engine probably. i would love to see Perfect Dark Zero/Ridge Racer with Crysis/Dirt 2 level of graphics.

It will only go down if the graphics don't get better. The main reason for why HD consoles are expensive to develop for is because asset creation takes quite a long time.

It's not so much about engines as it is about assets. If you have to create characters with 10 times the amount of polygons for a nice looking next-gen game compared to a great looking current-gen game, then the hours needed to create that game will go up severly, and with it, costs.

looking at PS4's Rumored specs , Will those even be that good in 2012-13?

yeah, but Cry Engine have basic models, textures etc. ready in the toolset if i remember correctly. 

Well, nothing is stopping studios from going back and using some of their old assets, which I think is pretty much the same.