I think getting the lower model of the 360 or the PS3 is a rip off. Outpost has the 360, after you use a 10% off coupon widely available, at around $360 shipped.
PS3 $499 is a smaller hard drive, no HDMI port (not a huge deal), and no wifi built in for wireless gaming out of the box. Plus, I believe the more expensive one also has a few memory card readers for SD, CF, etc.
Will games look better? Sure. Is it the same jump as from PS1 to PS2? Not really just in graphics alone. Does an HD set look better than SD when gaming? Absolutely, but again it's not like going up another generation of machines. Run a PC game at 640x480, then jack up the resolution to 1280x1024 and you'll see what kind of difference. Will you see "new" stuff? No. Will is look sharper and more clear? Sure.
Things to consider with the PS3. Launches are always fairly weak. 360 was pretty solid and PS3 will have a few solid games (CoD3 for sure). First year in a consoles life is always a bit frustrating because games are slow to come out. This will be no different here. Most games will be on both. Gran Turismo is still years away, unless you simply want GT4 with a little better resolution.
If someone is only getting one, I'd recommend a wait and see approach. Neither machine is a rip off, but for those without an HD set, I would say the PS3 is forcing to pay up front for something you wont be using any time soon. Stand alone BluRay players are $1,000 right now, so the PS3 at $600 is a steal relatively speaking. However, it should be noted that no game console to date has excelled at displaying DVDs which means the PS3 player may very well be the bottom end of BluRay players and not quite as good as stand alone units.
Can't say I'd recommend going either way since everyone likes different stuff. I plan to have a PS3 on launch day so it's not like I'm trying to hate it or bring it down. One bonus PS3 buyers will have is that developers have had a couple year already on "next-gen" hardware and are starting to figure things out. The PS3 first year games will probably be better than we've seen thus far on 360 just because it will most likely be 360 code ported over. I'm just saying that you wont see a stripped down Madden 07 like the 06 on 360. It will have more features because it's just the new 360 game ported to the PS3.