The 360 has the whole red ring problem, but it tends to have more exciting exclusive games. The PS3, however, does have more stuff on it. As a gaming system, the xbox wins my favor, but the PS3 makes for a better home entertainment system.
Of course, the PS3 does have some good games, I have played them myself. They just don't compare to most of the games for xbox.
xbox live is not free, but it is much smoother than the PS3's online play. You get what you pay for, and it's worth it. If that isn't enough for you, just remember that the PS3 is so expensive that the online play **** right better be free! You just payed your weeks paycheck on the sucker!
The xbox aims for gaming entertainment, the PS3 aims to be an all around system, and the wii is aiming towards being a family system.