Sony has not cleaned up its act? Okay, you need to rewatch these videos again.
So MS is showing off next gen graphics with supped up xbox engine at E3 qualified MS as showing off next gen games. Yea, MS real cleaned up their acts by showing supped up xbox games just like how Sony showed off GT2 supped up as a next gen PS2 game.
Your expectation of next gen is no more then supped up version of current xbox graphics as a starting point, while I expect UE3 as the next gen wave of graphics.