Jack and Calumon said:
How many Processors does the PS3 have again? Seriously, it's like 8 or 6 right?
A single huge one that is partitioned and has 6 different caches. Better suited for number crunching then gaming, huge bandwidth, poor clock speed. A different design with the same power could still be a massive performance boost for running games, at the cost of not being good at f@h [http://folding.stanford.edu/] and stuff like that.
Even then consoles are still bottlenecked by woefully underpowered videocards, fixing that would give you results much closer to current PC's then throwing in more CPU power that isn't going to get used anyway.
Lastly, airflow. Consoles, like laptops are underclocked and thus perform slower then their direct counterparts in PC hardware because there simply isn't enough room for heat dissipation in those tiny cases when running at full power.
Nintendo could make a more powerful console but they will have to choose between a reasonable price and making it portable. PDAs are getting close to consoles in terms of power but the high end models cost a lot. Or they can make it "portable" like an Alienware laptop that requires a cooling dock and has barely enough battery power to boot up.