"Next gen" consoles are still something like 3 years off, but I thought it'd be fun to speculate on their possible technical specifications. 


Assumptions: 
1. Companies will try to release their consoles at the break-even point (as minimal loss from hardware as possible). 
2. The consoles will cost $300 (consumer sweet spot). 
3. The consoles will use approximately the same amount of power as in the current gen. 
4. The savings from mass production are balanced out by the manufacturing, shipping, and retail costs (therefore they won't be included in the calculations). 
5. They will be released ~2014. 


So here goes: 


PSU - PS3's PSU size is 250W. PSU costs are generally quite stable, and currently 250W PSUs cost about $30-40.  

Case - The compact case design of consoles is probably incredibly cheap to make. Mid-tower PC cases that are much larger and have much more features retail at only $50; it shouldn't cost more than $10-20 for each console case.  

Optical drive - Next gen consoles will almost inevitably include a BR drive, Sony or not. Current BR drives retail for about $100, but cheaper ones can be found for as low as $50. By the time they start making the next gen consoles, my estimate is that functional BR drives could be used for around $30-$40.  

Motherboard - the proprietary motherboard of consoles are basically trimmed down versions of PC motherboards, leaving only the bare essentials. They don't require multiple PCIe slots, SATA controllers etc. My estimate is that they will cost a third to one half the cost of a regular cheap PC motherboard, so I will peg this figure around $30.  

RAM - DDR3 RAM is a given, and by that time RAM costs will probably be less than half of what they are now. Currently it costs about $20 per GB of DDR3 RAM. Assuming that the next gen consoles have 2-4GB RAM, this should cost them roughly $30-$40 by that point.  

HDD - My guess is something like 250-320GB (judging by the current 120-160GB) will be standard. Hard drives in that range currently cost about $45, by my guess is they will be roughly $30 by then. 


This leaves at most about $140 for the CPU+GPU bundle. To determine what they could be, it may be helpful to work backwards from our current hardware to see what could be bought for $140 currently. Right now, a 9800GT is about $75. An X2 260 $65. Both parts are what would've been counted as upper mid end about 2-2.5 years ago.  

So assuming new consoles are released ~2014, we can generally assume that the CPU and GPU will be upper mid end parts from mid-2011. Luckily mid-2011 is not that far off and we can do some quick estimates. The upper mid end parts in that time period will likely be Radeon HD 6850 and 6870. Those are currently deemed rather respectable high end cards at the moment.  

In mid-2011, Sandy Bridge and Bulldozer will be released pushing down the status of current CPUs. The AMD Phenom II X4 9xx series is currently deemed high end, by then it will probably have shifted towards the stronger section of upper mid end. The actual CPU will be IBM-based proprietary technology with a completely different instruction set from desktop processors, much like the PS3's processor is today, but this will still give us a general idea of performance. 


Final specs: 
- IBM proprietary CPU (if translated to x86, would be ~ current AMD Phenom II X4 900 series. However, it will most likely be a RISC-based design which would greatly enhance throughput for gaming, beyond its x86 counterpart)
- Proprietary GPU with raw graphical power ~ Radeon HD 6850 to 6870. Perhaps with 2GB VRAM. 
- 250W PSU
- Blu-ray drive
- 2-4GB RAM
- 250GB Hard Drive


The GPU is generally what matters most for gaming, so based off of the GPU estimate we can get an estimate for how powerful these consoles will be to current gen as a whole. The current gen's PS3 uses the equivalent of a 7800GT. Graphics cards at the 6850/6870 level are ~6-7x as strong (extrapolated from 3Dmark scores and reviews). Therefore, assuming that the consoles release around 2014 we should be able to see machines capable of pushing 6-7 times the graphical workload of the PS3 (given the assumptions mentioned at the beginning), or around as much as current ~$800 PCs. What this means for visual quality is: 


Current gen 

- Less than 1280x720 for most games
- Few advanced shader techniques
- Low framerate, <30
- 0xAA in most games


Next gen

-1920x1080 for most games
- Some minor tessellation ability, many advanced shader techniques
- Better framerates, 60fps becomes possibility
- 4xAA in most games (that is, if MLAA doesn't catch on)


Of course, this is merely conjecture and I could be leagues off, especially if there are any major deviations from the initial assumptions. Just thought I'd throw out a general ballpark, and I'm also curious to know what sort of specs you guys think next gen consoles will bring.