I've just finished reading one interesting article on Xbox360's Xenon CPU at Arstechnica, but most would like to jump to the article conclusion http://arstechnica.com/articles/paedia/cpu/xbox360-2.ars/
Some quotes:
Rumors and some game developer comments (on the record and off the record) have Xenon's performance on branch-intensive game control, AI, and physics code as ranging from mediocre to downright bad. Xenon will be a streaming media monster, but the parts of the game engine that have to do with making the game fun to play (and not just pretty to look at) are probably going to suffer. Even if the PPE's branch prediction is significantly better than I think it is, the relatively meager 1MB L2 cache that the game control, AI, and physics code will have to share with procedural synthesis and other graphics code will ensure that programmers have a hard time getting good performance out of non-graphics parts of the game.Article
In short, after analyzing how the PowerPC Processing Unit is built, the writer states that it's a little of a step backwards compared to current CPUs in the areas of AI and Physics, while being optimized for media streaming and 3D graphics.
Furthermore, the Xenon may be capable of running six threads at once, but the three types of branch-intensive code listed above are not as amenable to high levels of thread-level parallelization as graphics code. On the other hand, these types of code do benefit greatly from out-of-order execution, which Xenon lacks completely, a decent amount of execution core width, which Xenon also lacks; branch prediction hardware, which Xenon is probably short on; and large caches, which Xenon is definitely short on. The end result is a recipe for a console that provides developers with a wealth of graphics resources but that asks them to do more with less on the non-graphical side of gaming.Article
Now he explains why the most important feature of the CPU, multiple threads, will suffer because of the removal of some PowerPC hardware components present on current IBM CPUs to save die size and power consumption.
And before anyone screams "The Lemmings have been owned"
At any rate, Playstation 3 fanboys shouldn't get all flush over the idea that the Xenon will struggle on non-graphics code. However bad off Xenon will be in that department, the PS3's Cell will probably be worse. The Cell has only one PPE to the Xenon's three, which means that developers will have to cram all their game control, AI, and physics code into at most two threads that are sharing a very narrow execution core with no instruction window. (Don't bother suggesting that the PS3 can use its SPEs for branch-intensive code, because the SPEs lack branch prediction entirely.) Furthermore, the PS3's L2 is only 512K, which is half the size of the Xenon's L2. So the PS3 doesn't get much help with branches in the cache department. In short, the PS3 may fare a bit worse than the Xenon on non-graphics code, but on the upside it will probably fare a bit better on graphics code because of the seven SPEs.Article
This means that if the Xbox360 really is a letdown on these aspects, the PS3 would fare even worse, since the Cell have just one PPC core, compared to three on the Xbox360.
Also remember Nintendo's next-generation console will sport "Broadway", a custom-made IBM CPU, probably based on PowerPC architecture and suffering of the same problems above.
So, are we already screwed even before the first next-generation console is released? The dream of real-world physics will have to await another 5 years or so?