Did someone say that? Anyway, if Xbox 2 came out this year then Xbox's generation lifecycle is 4 years, PS2 lasted 6 years (2006 release) and GC 5 years (2006 release). Not seeing any 2-3 years. MS is urging the new generation because Xbox isn't a viable business. They want cost effective hardware now. That shows MS is in it for the long term profit, and that they'll try to keep Xbox2 out for 5 years probably.
The full potential of consoles isn't worth it from a technical standpoint. Ratchet and clank basically took PS2 to full strength. At launch Rogue Leader nearly optimized GC (wow, we get like 20% more performance by waiting 3 years for Rogue Squadron 3...a new console would be like 20000% faster this year). Maybe you're not talking about maximizing tech, but maximizing polish, in which case it is going to increase development cycles, and cost. To counteract that, developers need to start developing earlier, and ditch things like CG when it's not needed (like sports games). And I'm sure companies are already doing this. Games like Final Fantasy 13 should be about 50% done if they want to release in 2007.