I have both, and basically it comes down to a few things.
1) Whether you care about blu ray or not. If you want a blu ray player, then this is obviously a big advantage for the PS3. However, this issue is partially mitigated by the fact blu ray player prices are dropping (I've seen them as low as $200 recently), yet the PS3 remains starting at $400.
2) How much you care about online gaming. Put bluntly, Live is better than PSN. The one advantage PSN has is that it's free, for the moment. But, unfortunately, in many ways you get what you pay for. And of course if you don't care about playing online, the whole issue is moot.
3) Easily the biggest issue, which exclusives you prefer. The last two years the 360 has had the clear advantage in this category; from the looks of things, this upcoming year it might shift to Sony. Of course, as we've all seen, a lot of third-party exclusives have gone multiplatform, on both sides (Final Fantasy 13, GTA 4, BioShock, Eternal Sonata, etc.). So basically the only exclusives that can really be relied upon to stay exclusive are either a) First-party ones (Halo, God of War, Heavenly Sword, Fable, etc.) or b) Third-party ones that are funded directly by MS/Sony or done in partnership with them (here is where MS has had a huge advantage so far: Gears 1 & 2, Mass Effect, etc., compared to well, nothing much that's any good for Sony).
Here's a list of all the really good exclusives for both consoles that I'm aware of:
PS3- MGS4 (by no means guaranteed to stay that way, as it's not funded by Sony - or at least, isn't as far as I'm aware), Heavenly Sword, Uncharted, Resistance 1 & 2, LittleBigPlanet, Valkyria Chrnoicles. Sort of Ninja Gaiden Sigma (I say sort of because it's a port of an XBox game).
360 - Gears 1 & 2, Halo 3, Mass Effect, Fable 2, Dead Rising (another 3rd-party game that might not stay exclusive - in fact, I think there's a Wii edition coming, if I'm not mistaken), Crackdown, Lost Odyssey, Tales of Vesperia, Ninja Gaiden 2. Sort of Tomb Raider Legend and Call of Duty 2 (I say sort of for the last 2 cause they're on last-gen consoles, too).
Coming this year (or at least, coming at some point down the road):
360 - GTA 4 expansion (DLC), Fable 2 DLC, Halo Wars, Halo 3 expansion, Star Ocean 4 (exclusive at the moment; may change), Splinter Cell 5, Kingdom Under Fire 2, Alan Wake (if this ever gets released - and who knows, the rate it's going, it'll probably be crap like Too Human), Tomb Raider Underworld DLC. (MS is banking heavily on DLC this year, for whatever reason)
PS3 - God of War 3, Uncharted 2, Killzone 2, Final Fantasy Vs. 13 (exclusive at the moment; may change), White Knight Chronicles
? - Mass Effect 2 (1 was MS exclusive, but since EA bought BioWare, who knows what'll happen with this). These are all the ones I'm aware of; there are probably more on both sides, but you get the idea. It's simply a question of what games (or type of games) you prefer.
The other thing to keep in mind is how games that are on both systems perform. In many cases, they run or look better on the 360. Not always (e.g., Oblivion, Eternal Sonata), but often (e.g. Orange Box, almost any EA game). I'm not a computer techie by any means, but it's my understanding that the PS3 is harder to program for for whatever reason. Maybe developers use this as an excuse for lazy ports (here's looking at you, Orange Box) but regardless, the fact remains that in many cases there is a discrepancy in quality between multiplatform games.
On another note, if you care about backwards compatibility, then you should know that a) newer PS3s are not BC with PS2 at all, only PS1. Of course, if you can find an older PS3, then that problem is solved. Sony removed the BC to make people buy more PS3 games, as well as save $ on each console manufactured. 360, on the other hand, is BC with about half of the XBox's library, but it runs most of the XBox's better titles (Prince of Persia 2 & 3, and MGS 2 are about the only AAA titles I can think of that aren't BC). The quality of the BC varies; stuff like Halo or Jade Empire run perfectly; other things, like KotOR 1 & 2 are barely playable.
Finally, yes the 360 has a high failure rate (at least, the older models. Though if MS is to be believed - which of course they probably aren't - then they've finally solved the RROD problem with the new "jasper" models). However, the process of getting your repair/replacement console isn't nearly the horror story that many people make it out to be. I had mine replaced recently, and the whole thing took about two and a half weeks, and about an hour to re-register all my DLC on the new console. Not exactly the most difficult thing I'll ever go through.
So that, in a nutshell, is everything you need to consider. Personally, I use my 360 more than my PS3 to play games, as I prefer the 360's exclusives (though Sony has some very good ones, too). But if blu ray is your first priority, well, then obviously the PS3 is the way to go, if you've got the dough for it.
If you are gonna get a PS3, you may wanna wait, as Sony is rumored to be dropping the price around March or so (of course, they're denying it with all the usual "we have no plans blah blah blah" BS). But, quite simply, if they don't wanna get too far in the hole to MS, they're gonna have to drop the price at some point.
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