This is what I was expecting, because there really isn't all that much that can be done to improve on the PS3's graphics even if that was Sony's objective. The graphical wall has been hit until holodeck technology shows up.
That is very wrong. Graphics can do much more. The problem is that it will cost far too much in both time and money to achieve them. PS360 leapfrogged in tech over the previous gen and cost skyrocketed because of it. We should just now be getting to that level of graphics in the console space if we want to keep things affordable, so it makes sense to slow things down a bit.
2 PS3's duct taped together will be a very capable machine. Especially if they stick a well thought out GPU in there this time.
Assuming this is true though, that really does leave the ball in MS's court.
Do they continue with the tech arms race towards real-time movie grade CG in hopes that Sony will continue to spend and compete? Or do they continue on their current path of expansion towards the casual market?
MS is on deck to show it's hand at E3 2012, Nintendo is already all in, but I'm not sure if Sony will be at that table too.