The generational gaps that were crossed earlier aren't very possible nowadays because graphical upgrading is hitting a plateau, which is why the 360 and the PS3 have opted for HD, since that's the best way to show a "huge difference" between last generation and this one.

The main problem with that is the lowish HD adoption rate, but what other choice would they have? They could have used the entire bulk of those processors in there and did some amazing things, but they felt that using some 1/2+ of it simply to produce HD-Graphics would produce better visuals. Sure, they would've looked better than last gen regardless but not even close to the jumps between other gens. Visual differences vs. technical differences is by far more of an uphill battle than it was previously. My question is what they're going to do next gen to achieve the same difference, since both support 1080p output right now.

I think the gap between even handhelds and consoles are closing because of that plateau, and will be reflected in the future. Once casuals think that their handheld games have better graphics than their consoles, and instead would rather hook their handhelds up to their TVs (not a strange notion, IMO), consoles will be dead IMO, consumed by the almighty handheld. Yes, that's presumptuous, but I can't say that I can't see it happening, with handhelds only about 1 and a half gens behind as-is.