Next gen won't be driven around visuals.
And yet significantly inferior visuals means they will be competing against the POS hardware Wii U and the megaton of software Nintendo has that directly appeals to the market that also doesn't care about visuals.
Look, I don't think being 10-15% off in performance between MS/Sony this gen will make much a difference. Lower the IQ here, take a small step back on resolution here, etc and I think we are entering an era were art and design are so much more important that a few percentages here and there won't make a difference.
That being said...
Early adopters are vital.
And peeps are STILL dropping wads of cash for iPads, Laptops, netbooks, and even mobile phones that run well over $300.
It would be a serious mistake for either Sony or MS to seriously under target next gen. You know what would happen?
If MS ships a $250 console with middling power and cut features and Sony goes with a reasonable $399 design that is balls to the walls faster (not the psuedo-PS3 garbage I called out in 2005) then Sony would be in the position to have a great launch (go back and read how well MS's launch sales were--they were fine) and MS would find themselves in an unenviable position.
Basically there are currently 2 tiers: The budget Wii tier and the "Next Gen" performance tier. From the early adopter perspective if it really comes down to a $299 BOM and a $399 BOM, and the difference is in the silicon (and not just all the other junk that is needed for the box) a $399 console, which has historical precedent of being affordable, is going to have a HUGE visual difference.
Which will be amplified by the fact Sony has a ton of really great technical teams and MS has... Lionhead, Turn10, and 343 which has never even developed a game.
Ps- Social networks, btw, will play a major force. There are price points and $300-$400 has shown to be effective for early sales. The enthusiest gamers who line up at midnight for these consoles will be chattering for months before release about the consoles and we saw how fickle they can be (PS3 and their stupid $599 pricing; yet embraced $399 360s). People know when they are getting less for their money.
Per the rumors, a good gauge of what MS is packaging is seeing what is dedicated to the GPU. Whatever the CPU may be it still has to work with a GPU. If the GPU is smaller than Xenos/RSX, or on-die, and MS is still targeting the "premium" price points (i.e. the accountants are now in charge) then it will be a poor valued product for a console that will be expected to be around for over 5 years.