Well, it's not only that AMD is cheaper, it's also that Sony learns from its mistake, since the Nvidia's RSX gpu for the PS3 is just a modified Geforce 7800gt with reduced ROPs, I believe. AMD (ATI) designed a totally new and more advanced gpu (Xenos) for the Xbox 360 with embedded memory and unified shader architecture and all, and the result was evident, even now when compared to PS3 graphics in games, especially in most cross-platform games that are available for both console.
Indeed it was, Xbox 360 has much crappier graphics than PS3. The most evident case of that I can think of is GTA4 where buildings and other objects just pop out of nowhere (result of low rendering distance to keep the framerate manageable). I played this game on friend's PS3 first so the difference was stunning, I couldn't get used to tis annoyance, it made quick action scenes (when you're chasing someone etc.) much more frustrating as objects appeared where it used to look like free passable space.
That GPU in Xbox 360 is a piece of poop so no wonder results are so underwhelming. I'm a long time ATI user, currently running HD5770 but the Xbox GPU downright sucks.