Man, if people honestly think that more power = better AI and better hit detection, they obviously know nothing about programming.
Yea, increasing the polygons and making engines with more features is a nice idea, but outside of graphics, hardly anything else can be improved UNLESS you get incredibly talented programmers to hack away at features for long, long periods of time. Yea, a physics engine on the PS3 might be more in depth than the PS2, but it is LARGELY based on how well the programmers write it. It has so little to do with the pure power of the system itself. And in a profit-based economy and industry, NO ONE wants to have their games stick around to let the programmers hammer out a more realistic way of falling.
It's wishful thinking to assume that a bigger console = more features outside of graphics. Yea, in a perfect world where everyone had years to write better code and engines, that might be. But in this EA-get-a-game-out-every-year-no-matter-what, you'll be lucky to see anything leaps and bounds ahead of what is currently available. Clothing physics, water reflections, shadows and lighting. The only reason the N64 couldn't do it better is because the graphics would have required too much.
But I'm pretty damn sure if you were to animate, say, a feather on the N64, it could be identical in physics to the PS3. Sure, it would look like sh*t compared to it, but you could easily implement almost identical code.
More power = more graphics and that's almost SOLELY what it will always mean.