The catch with increasing graphical prowess is that it can only be increased so far before it ceases to have any discernible impact on fundamental gameplay mechanics. For my money, that threshold was crossed with the previous generation of consoles (and their equivalent PC titles), not the current one. There's no argument that the transition from the earliest consoles (Atari 2600 era) to something like the NES allowed for all sorts of brand-new mechanics in gameplay; you could never have created such a tight platformer as Super Mario or a cohesive shooter as Contra on previous hardware iterations. In turn, the SNES/Genesis generation allowed for far more expansive gameplay environments and more complex mechanics, even delving into the 3D realm with something like the original Star Fox. The PS1 and N64 were probably the single-biggest innovation, seeing as how they introduced fully-3D environments that opened up entirely new genres of gaming on consoles. You simply couldn't manage the FMV cutscenes of a Final Fantasy VII, or the immersive environments of Ocarina of Time, on previous hardware. The PS2/GameCube/XBox generation crossed the one hurdle that previous generations couldn't: it could generate smooth, quasi-realistic 3D character models that could move smoothly and display emotions. Some of the later games of the previous generation, such as Resident Evil 4 or Shadow of the Colossus, really are stunningly beautiful.
Now, when you look at the 360 or PS3 today...what do they fundamentally deliver that the previous generation couldn't? Sure, you can manage more realistic ragdoll physics or exploding barrels if your physics processor subroutines are up to snuff, and there's no denying the level of shine and polish you can overlay your worlds with, but in the end, there's nothing you can really do to revolutionize gameplay. The previous generation managed to expand consoles to essentially every genre under the sun; all you can really do now is smooth out the rough edges. I think that Nintendo realized this when designing the Wii, which is why they went with hardware that was somewhat more powerful than that of the GameCube yet didn't represent a quantum leap forward. Instead, they chose to go with the one element that did represent a big gameplay innovation: the control scheme. It may bother some of us that so many Wiis out there are being used for little more than tennis or bowling, but no one can deny that the strategy has had a massive payoff for Nintendo.
