What PS3 and XBox 360 are striving for is more realistic graphics. Look, for example, at this comparison of PS2 and PS3 graphics engines from Sony's E3 keynote (confusingly titled "Gameplay Innovation" although it has nothing to do with gameplay whatsoever, only with graphics). Notice that they are saying, among other things, "PS2 only allowed you to move the analog controller in 8 basic directions" which is bizarre and simply not true. Well, EA, if you really mean this, you are basically saying "Look, our PS3 games will be better than our PS2 games because our PS2 programming sucked". But now back to the point...
The presented animations are definitely more realistic than on PS2. No, strike that, that's not true. They are not realistic at all. They are "less unrealistic". If you look at the gameplay demo at the end, it only takes you two seconds to see that these characters are definitely not real people. You don't have to know anything about gaming hardware, programming or animation to plainly see that this is a computer animation, less realistic than your average current Hollywood CGI sequence and not resembling real human movement.
For me (remember, this is all subjective), this is countrerproductive. "Foot planting", "responsiveness" and other things they show are steps in the right direction but they still have VERY LONG WAY to go before the result resembles real world environment. I'd much rather see simple stick figures with hyperrealistic movement than million polygons moving in stiff and unrealistic way. But looking at what Sony and Microsoft are doing, I am probably in minority.
UPDATE: This article (and accompanying video) seems to be the step in the right direction. Of course, I am not sure how much of it is plain old hype.