Gears of War was the first game to really raise the bar visually this generation. A lot of gamers who played the game back in 2006 said that's how next gen games should look like. The game's great visual effects and high resolution textures made those gamers say OH SHIT many times. Then, Uncharted the first graphical showcase for the PS3 released. The game showed what the PS3 hardware is capable of and made a lot of doubters rethink their minds.  
After that, PS3 graphical dominance continued with games such as MGS 4, Killzone 2 and the recently released Uncharted 2, which blows the competition out of the water.  
Anyway, we have been discussing what are the reasons that prevent Xbox 360 games in delivering the same visual fidelity seen in PS3 games, and the conclusions of the discussion are:  
1. Xbox 360 disk format:  
DVD 9 format is preventing developers from creating: bigger environments without sacrificing quality, better overall experience and more badass graphics.  
2. Not every Xbox 360 console is loaded with a hard disk:  
Hard disk = More solutions for the developers.  
3. Too much focus on Unreal Engine 3:  
Resident Evil 5 does look better than Gears of War 2.  
4. Xbox 360 First Party developers are still using recycled graphic engines:  
Halo 3, Halo 3: ODST, and Fable 2.  
While it's too late to fix some of the issues in this list like the lack of hard disk in every Xbox 360 console and the Xbox 360 disk format, the other issues can be resolved.  
So, that's our take on this. Have anything to share? post it in the comment section.