From the looks of it, Sony's trying to create a standard solution to it with the PS3. Not that the PS3 is necessarily going to be the console to make everyone do it with its relatively poor adoption rate, but from reports I've read, the demos were pretty impressive.

I don't think that graphics quality will necessarily need to be lowered. I could see the next generation easily having more horsepower than devs could harness (much like what people say about the PS3, but more). It's not something that'll likely be all over the place even a year from now, but maybe in five or more.