I think the idea was that the Cell would allow the PS3 to do things like KZ2 and U2 (and GT5 probably).
Having the designers put effort in Cell, and not so much in the GPU means that up to this point roughly 90% of all multiplats perform 10-20% worse on the PS3.
But who cares about multiplatform games when hardware exclusives will blow them graphically out of the water anyway?
It will only get better from this point on, as all developers share techniques and what not.
Not as a comparison, but looking at games like Gears of War 1, or PGR3 (or 4) in retrospect, I think those bars have not been raised (on the 360) since. Not that it really matters, as those games are great looking, even today.
The PS3 was designed to go beyond that, so if that means having generally worse 3rd party games, so be it. I wouldn't want to trade U2 or KZ2 graphics for all the multiplats in the world