The $200 dollar XBox 360 is a "gimped" unit. It has very little (256MB) internal storage, an HDD is almost vital for gameplay, and they charge @100 for a compatible hard drive. So, in the end you should buy the 360 Elite and both systems will cost $299 right out of the box. That said, except for a few exclusives, the same games are on both systems with the exact same graphics.
To differentiate, the Xbox has the better online experience, but you pay for it ($50 a year for the XBox live gold membership). Also, the 360 has no WiFi, so you need to run an ethernet cable to the system or pay an extra $100 for the WiFi adapter. Most gamers do say that Xbox has the better console exclusive games. (Halo, Forza Motorsport, Gears of War, Fable, Etc...). Also, many people may bring up the 360's ridiculously high overall failure rate, but all evidence is that that problem is gone on new units.
The PS3 for your $299 has a Blu-Ray player built in (which may or may not interest you), has free online play, and WiFi right out of the box. Sony's console exclusives are gtting better, with some really great titles out this season (Uncharted...) and some marquee names soon to be released, like God of War and Gran Turismo.
Personally, I think the PS3 is a better deal and wouldn't even consider a 360... but that's nothing more than my opinion. If your boys intend to play online (and you're willing to shell out for the membership fees) they will likely have a much better experience with the 360.
I have both in my household and I choose the PS3 in every aspect.
