Polycounts are still going up, mind you, even though it may not be that much. In current gen games, with certain genre-specific exceptions, characters rarely go above 5200 polys... especially on multi-SKU titles. With UE3, 6000-8000 is not out of the question.
One thing you have to realize, (and while this is fairly certain on Xbox2's part, I don't really know about the other two), the shift is less towards increasing raw fillrate massively, but more focus is put on shader power. Being able to execute longer, more complex shaders is basically where the power is going. More importantly, that increased range means more customizability of the overall "look." That's not to say we won't be able to process huge numbers of polygons anymore, but more that the increase in fillrate over current GPUs is not as large as you might expect.
The downside is, of course, if you're going to be loading up on shader instructions, you can't process a million polys. If it was something like DOA3 where all the characters are basically using vertex lighting and completely fixed-function rendering... well, then, you can just load up on polygons as much as you want so long as you're not saturating bandwidth.
Also as far as the whole on-the-hardware support for subdivision surfaces. No real clue what to make of that. Nobody I know of has beta hardware, so there's no real way to test a feature like that. I'm not even entirely sure if that rumor is worth taking seriously. So even if some developer out there knew for sure that the support would be there, the best you can do for now is render screenshots without it. For that matter, if you knew for sure that there would be SS support, I don't see why you'd build control meshes that are even close to current-day polycounts -- you could afford to go far, far lower...