As hardware gets more powerful, there's greater pressure on developers to fully utilize that hardware. However, to do this, the number of manhours spent on a given project is going to increase.
We are, as far as I know, at the point where a single failed project can destroy a company. Even one that had been doing well previously. And we're close to the point where a project that isn't a failure but still grosses lower than expected can do the same. Essentially I think that hardware is driving up development costs, to the point where developers can't really keep up, and the cost of taking risks is... no longer worth the risk taking.
So what's the tipping point? Are we going to start seeing 70 dollar games this generation?
Or are we going to see a situation where lower-budget, less ornate titles start dominating the market, just by the merit of actually getting released in a timely fashion, rendering the extra hardware oomph irrelevant?