Because the Xbox, PS3, and N64 all won their respective console generations.
IEB is all about profibility in the recent and upcoming years. Unfortunately power hasn't strongly correlated with profits through the console generations.
You can't draw conclusion based on past generations. For example, by the time Xbox came out PS2 was past 15 million mark. Entire industry that came from PS1 to PS2 backed it up. You had more exclusives from now 3rd party developers than Sony 1st party alone. It was over for Xbox before it began. Totally different situation than this generation.
Microsoft had to send people to 3rd party studios to get them to make games for 360, to convince them it would be financial benefit for them to develop for the system. It was exact opposite in comparison with PS1->PS2 situation.
PS3, I'm sure we all could agree, was over-engineered. The power wasn't its downfall, 360 had it and it had it year earlier. It was Kutaragi wet dream, power argument doesn't follow the pattern.
PS2, when it came out was as powerful as they could realistically make it (financially). Xbox 360 was as powerful as they could make it. Next generation doesn't even have to be as powerful as they can make it because if we would copy the strategy from 2005 we would be talking about 4 TFLOP machines and they would run in alot of problems (die size, TDP and very high price) but they can still make them plenty powerful and not bleed money.
I'm sure they know that they can't skimp on it next generation. You CAN'T release console that is competing in same market with competitor, and release it underpowered. You can't do that when majority of money is in 3rd party that has "finally" embraced both, Sony and MS, as their targets. 3rd party is clear, they want power and in their perfect world they would like both consoles to be close. There is no need for convincing. They will be there, but if your console is underpowered (that goes to any of these two) you are in trouble, because you no longer aim for the same market unless you get lead like PS2 had last gen and 3rd party heavily on your side that they won't mind about big advantage other console has.
They can build reasonable priced consoles that pack ~2TFLOP GPUs in them. They both know it. They know it if they can, than their competitor can too. If one of them goes for much lower so they can make money right out of the gate than they can expect competition that won't do the same (and they expect it, at least MS as they noted in their internal papers).