The PS3 is capable of better graphics than the 360, but there hasn't been much to show it yet. The 360's graphics chip is more powerful than the equivalent in the PS3, but the PS3's true graphical power lies within the Cell processor and it is taking some time for developers to get up to speed with it.
If you want an example of what is possible (note this is a capability demo, not a game demo) look here;
http://micksam7.com/blog/index.php/2008/linger-in-the-darkness-by-plastic/
[Edit - Yaz]
"Blu-ray doesn't mean better graphics (as some seem to believe), it simply means more content per disk."
And just what do you think that content is? The reason a blu-ray movie is better than DVD is because the storage allows for better definition. The same applies for graphics.
"for an *honest* idea of how the consoles compare, you need to listen to those devs with experience creating quality games for BOTH consoles."
Rubbish, listening to developers trying to get the same game out of both consoles is the LAST thing you should do. Listen instead to those getting the best out of each console (like Bungie and Insomniac).
"It's also true the Cell processor can help with the graphics (Warhawk uses it for the volumetric clouds)", but the same is true for the 360 with it's CPU (look up memexport). It must also be remembered that any CPU power used for graphics means less CPU power available for the rest of the game."
Which is why the PS3 has one general purpose CPU, and six (available) specialized Processors. Sony realised that a lot of power would be required for graphics (and in truth so did Microsoft, which is why they expanded their cores to support vector operations), but you have 1 General porpose Core and six Vectors units vs 1 general purpose (or 3 general purpose) and two vector units (or zero vector units).