Hardware wise, the two are probably pretty evenly matched. In theory, the PS3 has a more powerful CPU, but taking advantage of the extra power in the context of a game seems to be challenging. The 360 has a more modern GPU design (unified shader architecture), but seems to be similar in terms of raw power to the one in the PS3. The memory structure on the 360 is a bit more developer friendly.
So far the storage difference doesn't seem to have been a huge deal. There are quite a few games on the PS3 that are bigger than the 8 or 9 GB that will fit on a single DVD, but it's unclear how much of that is out of necessity and how much out of using less compression. So far the only games that have spanned multiple discs on the 360 had excessive amounts of pre-rendered video (something that has gotten less common now that in-engine cut scenes no longer look like crap).
Cross-platform games tend to look about the same graphically so far, but at the moment the 360 has a much better selection of good games than the PS3. Unless Sony pulls off a miracle this Christmas, I expect this trend will continue.
As far as value for your dollar is concerned, it largely depends on what's valuable to you. If you're primary interested in a gaming machine, it's hard to beat the new bundles that are coming out (may already be out, not sure) for the holiday season. There's the Arcade Bundle at $280 (only $30 more than the Wii) which comes with a 256MB memory card and 5 Live Arcade games (smaller games normally sold through the XBox Live Marketplace for $5-$15), though there seems to be some confusion as to whether or not these are full versions or demos. Then there's the Pro which comes with a 20GB HD, Forza 2 and Marvel Ultimate Alliance for $350.
The $400 PS3 is finally within striking distance of the 360 Premium/Pro. The complete lack of PS2 compatability is definately a minus for the sytem, but if you want a Blu-Ray player it's a good deal assuming there are games you want for the PS3.
As far as video playback is concerned, the PS3 supports more formats, but the 360's support is less anemic than it used to be. The 360 currently supports h.264, MPEG4 (but not DivX), and WMV formats.
Reliability has been a big issue on the 360 until recently. Seems there was a design flaw which resulted in a large percentage of units overheating usually resulting in the dreaded "Red Ring of Death." It would appear that this has been fixed in newer 360s, but no one will be 100% sure until these units have been around for a while. The good news is that the warranty for RRoD issues is now 3 years and 1 year for all other issues. If your console breaks, total turn-around time from when you call tech support to getting a new console is about a month with no shipping costs passed on to you (Microsoft ships you a pre-paid shipping box to send your broken unit in).
My vote would be for the 360.
Disclaimer: I am the owner of a 360. My 360 broke under warranty and was replaced.
