They're both fairly equal in terms of power and output capabilities. And before you say it, yes I'm well aware of the Cell CPUs capabilities. But I also know it's limitations.
MS are working to fix the 360's overheating problems with free repairs and I believe next they'll just replace your faulty box with the 65nm CPU version instead. That means we can pretty much ignore hardware.
So it really comes down to software. The 360 got an 18 month head start so it's well ahead in terms of software choice. But the PS3 has some really nice looking titles in development as well (Lair could be amazing, the new MGS looks fantastic too). Most games are coming out for both anyway, so about 95% of the time it won't make a difference
The Blu-ray v HD DVD debate is a pain.
Googlefight has HD DVD winning (
), but they both have limitations. Visual quality is marginally better on HD DVD, but sound seems to be better on Blu-ray.
If you take the red rings out of the equation it's an even fight. It was purely the cost that turned me away from the PS3. There's a lot of good bundles available for the 360 too. I got mine, the 20Gb HD, 2 wireless pads and 3 top games for less than even the new reduced PS3 price.
Sorry I can't help more, but I'm not a hardcore fanboy so won't flame either of them