'I for one have not seen a phone game that looks as good as the original xbox.'

Come on that's a bit of a stretch ain't it? PS Vita is a so called 'mobile device' and Uncharted on it looks nearly like a console game. In fact I am pretty sure UC on PSPV looks nearly as good as the first Uncharted (not the 2nd or 3rd.. those were definitely a step up). Even Infinity Blade on the iOS devices looks nearly next gen (it looks terrific on the new iPad retina display... Just looked at that when I went to the store the other day).

The problem isn't processing power. It's the battery life. Since more graphically intensive games = more battery drained, most manufacturers don't feel the need to cramp up so much power.

However, in terms of hardware, we are nearly there. The A15 ARM architecture based processors will be released, Samsung's gonna release it's Equinox processors and Apple just released it's A5X with Quad Core GPU... I am pretty sure if optimized, they can match the current console quality, if not surpass them.