At the moment of writing, the PS3 is on the concept and contract stage. Different sources (ZDnet, The Register) claim IBM to design and produce the main new chip behind PS3. The chip, codename "Cell", is about the same for PS3 as the Emotion Engine is for PS2. Toshiba, who produced the Emotion Engine, will continue to produce other chips from the PS3. Shinichi Okomoto, the Senior Vice President of R&D at Sony Computer Entertainment, has claimed the PS3 to be "1000 times more powerful than the PS2". That's one ass-kickin' machine. According to the rumors, the PS3 is to be delivered in 2002, but this is highly unlikely and far from confirmed.

The PS2 promised a digital entertainment centre, and while Gran Turismo 3 is quite entertaing, the movie / music / gaming system have remained largely for gaming and nothing else. The initial promises from Sony was to have the multimedia box system fully developed by mid 2001. That hasn't happened yet, so many news sources speculate in the rumours of the Xbox-killer PS3. Sony also want to include full Internet access, with shopping functions, e-mail, web etc. This is in part why they chose IBM to deliver the chip, since IBM is a huge actor in the LAN and WAN arena.

2002 update: Sony announced plans for a hypothetical PS3 system. They announced that Moore's Law is too slow for PS3 and research parallel computing as an alternative. Okomoto also presented a parallel computing system made from 16 PS2s at a convention. Sony wish that the PS3 will be more than 1000 times faster and better than the PS2, and with some clever distributed computing, that may actually happen. Not in 2002, though. The PS3 will also have extended internet capabilities built in, some speculate that the games will be online-only.

May 2002 update: I did and article on the PS3, for you who read Scandinavian:
The news agency Kyodo tells us that the speed of the processor (Nicknamed The Cell will be more or less 200x faster than the current Emotion Engine, it will be stuffed with goodies like fiber-op network, HDTV-ready, DTS-ES ready and backwards compatible with Playstation and Playstation 2. The alleged breakthrough however, is in the processor. The new processor will be a single-chip parallel computing powerhouse of a chip. The unit is planned without a harddrive because Sony see it as an "always-on" device with constant access to the 'net. Never mind this being an "Xbox killer", the PSOne actually outsells the Xbox in Japan at the moment...

January 2003 update: Sony and Toshiba have licensed the Yellowstone RAM tech from Rambus. The Yellowstone tech is a high-speed CPU-RAM interface technology and this follows the RDRAM tech used in the Playstation 2. (Source: ZDNet).

May 2003 update: The E3 in Los Angeles has passed, with no more surprises in the PS3 field.
While we are waiting, here's some PS3 humour: