While graphics technology is advancing it's reaching a point of saturation. The variance in graphical quality in the past three years has been so small it's practically negligible. It all boils down to how much detail we can cram among a steady flow of 60fps.
Lately the fad seems to be maximizing resolution. Current-gen consoles run most big titles at 720p and smaller apps/games at full 1080p. With a little push using current-gen PC technology they could effectively have consoles that run everything at full 1080p (or higher depending on future HDTV tech) with a full complement of visual bells & whistles incl. DX11 with tessellation. My expectation is that they would have to make something a little on the future-proof side. It's not enough to just surpass current gen consoles, they need to surpass current-gen PCs (near-future-gen PCs will still have an edge due to the nature of PC tech).
Let's not forget the console's place as more than just a gaming console. These days I use my PS3 more for movies, music, and the occasional photo slideshow than I do for games. Sony ought to expand on this multi-functionality in order to be a viable contender, at least in my opinion.
The Ars Technica article is interesting and the commentary on game media sparks disparate sensations in the back of gamers' minds. There's hope for better visuals, better interfaces and modes of interaction, and multimedia options. Then, of course, there's fear for games media, digital rights, and second-hand sales. A new console could mean new rules and new (lower) standards of social acceptance of Draconian (I love that word) restrictions and tactics.
There's a lot to look forward to but for now everything is based on mere speculation. We have to wait for an official response from Sony before people start busting their nuts on Sony.