The PS3's hardware is actually pretty good. Since the system still receives firmware updates on a regular basis making it a better performing machine. The upscaling on stand alone Blu-ray players, for example, are fixed for DVD. The PS3 is upgradable by software, meaning it can get much better in the future. It can also decode all the HD audio formats internally and output them over HDMI as multichannel High Resolution PCM negating the need for a receiver that features on-board DTS-HD, Dolby TrueHD, and Dolby Plus decoders.
My opinion is biased because I am using a PS3 as a Blu-ray player. The PQ is obviously significantly better with Blu-ray making it an instant win over DVD. I can't say I have compared the PS3 to any other Blu-ray player on anything other than what I have read (specs, reviews). The biggest advantage in my mind is that it is a very good gaming system. Unfortunately Sony has very few games that warrant purchasing the PS3 for gaming only. I do think that Sony intends to step it up a notch for Christmas and after since the PS2 will be discontinued.
On top of gaming and DVD/Blu-ray playback it also works well as a music/video server.