Sounds like a mighty fine innovation motivator to me. That's what we need. Them making efforts to improve in an attempt to woo customers. What we don't need, is for these companies to dominate. Complacency is not what we should want from these companies.
I'm not sure costs will increase at the same rate. They are getting closer and closer to methods used in pre-rendered CG, and tools continue to improve and make it easier to get better results faster and more naturally. The introduction of Zbrush/mudbox has skyrocketed model quality, and many things like trees and foliage have software that make it light-years faster to implement. Where you used to have to hand place every element, now they can "just" kinda "Paint" objects into the scene at any level of randomness they chose.
They really didn't innovate anything though, the X1 was just a basic new console with a kinect in the box, it's not like it brought anything new to gaming that wasn't around last gen. I get what you are saying about needing companies to innovate but they need to always make sure that they are giving people what they want vs telling them what they want and MS lost sight of that. Honestly I think all of this focus on VR that's happening is a waste of time and resources too, yeah they are trying something different but I doubt any of these companies will have long term success with these products. Gaming consoles don't need to be anything special, they just need to be as powerful as a company can afford to make them and capable of delivering a developers vision, anything else is just a bonus but should never be the focus.