If you thought that Nintendo had won the video game console war with the spectacular success of its Wii, you may need to think again.

Sony and Microsoft, with their PlayStation 3 and Xbox 360 consoles, have spent much of the past 12 months on the ropes, but are now coming out fighting. Ironically, by making gaming a legitimate entertainment activity for all the family, Nintendo may have done its competitors a good turn. Now that mum and dad are games players, too, the thinking goes, they're ready to appreciate the advantages of a technically superior console, such as the PS3 or 360.

Central to this new assault on our wallets is the idea that the next-generation games consoles are more than just toys: these are fully fledged media servers, capable of storing all your digital content, from home movies to music collections, digital photographs and downloads, and then playing them back to you on your TV. The games are now a bonus, not the core feature.

“The PS3 is the best designed and prepared for the digital networked future,” says Sony spokesman Jonathan Fargher.

“The product we launched three years ago is a different product today,” says Neil Thompson, Microsoft's Senior Regional Director for Northern Europe.

Who's right, and can their machines make your life better?

SONY PLAYSTATION 3

The basics

There is now only one version of the PS3 on sale in the UK. It costs around £300, contains a 40GB hard drive and can connect with or without wires to the internet. The machine has USB ports for connecting external devices such as cameras, MP3 players and hard drives.

What it does

In addition to playing PS3 games titles, the PS3 plays high-definition Blu-ray discs, as well as standard DVDs and CDs. It can play digitally stored films, music and photos, and can access these from other computers on the network. The PS3 has wireless connectivity built in, so it can connect to a wireless broadband network without additional purchases. Sony operates an online store, which is currently undergoing a major revamp. At the time of writing, its offerings are largely restricted to games.

The PS3 is the cheapest Blu-ray player on the market, and with Blu-ray having now beaten HD-DVD in the battle of the next-generation DVD formats, this capability looks like less of a potential white elephant. Sony allows more technically minded users to install a different operating system on top of the PS3's built-in system, a special version of Linux, which would effectively turn your PS3 into a PC.

The machine is also designed to integrate with Sony's handheld games console, the PSP. One particularly impressive feature is Remote Play, which allows PSP owners to access and control their PS3s from anywhere in the world via the internet.

What it will do

Sony has a crucial advantage over Microsoft in the content stakes: it is also one of the world's biggest entertainment companies. According to Fargher, the company is looking at ways to expand its store offering to include downloadable content from the likes of Sony Pictures and Sony Music. The company has also struck a deal with Sky to provide programmes for the PSP.

Later this year, the company will launch a new product called PlayTV, a digital TV tuner for the PS3. This will plug into a PS3 USB port and enable owners to watch all free to air UK TV channels and record programmes to PS3's hard drive. This will make is possible for anyone with a PSP to watch a programme in their UK homes via the internet, even if they are in Hong Kong.

XBOX 360

The basics

Microsoft's machine can be purchased in three versions, the cheapest of which (£160) comes with no hard drive. For storage of digital files, you will need either the 20GB or 120GB versions of the console (£200 or £260). The hard drives are also sold separately. All machines have USB ports to enable the connection of external devices such as cameras and MP3 players. All machines can be connected to the internet using standard ethernet cables. A wireless internet adapter is available for an additional £55.

What it does

In addition to playing Xbox 360 games, the 360 functions like any normal DVD player, and can play DVDs and CDs. When connected to the internet, it can be used to download and playback free and paid-for content, including trailers and sample games. Microsoft currently has a deal with the American film studios Warner and Paramount, and a small library of their films is available for paid download, some in high-definition. These films are supplied on a rental basis, and pricing is comparable with renting a DVD. The downloaded film remains on your console's hard drive for seven days. Once you start watching, you have 24 hours to complete viewing.

In terms of multimedia content, the Xbox 360 can read the same photo and music files as your home computer (like the PS3, it cannot read tracks bought from iTunes). “The integration between how you store and manage your content is important. In future people will want their content accessed on any device. This is the nirvana of the technology industry,” says Thompson.

What it will do

As more of us embrace a digital lifestyle, the Xbox 360 will keep pace, says Thompson. “With broadband speeds increasing exponentially over the coming 12, 24 or 36 months we will be looking to increase our offerings. Already, the number of users of our download services have exceeded all expectations and we expect that number to continue to grow.” Expect more film studios to hop on board soon, and possibly a television broadcaster or two - Thompson admits that discussions with the BBC have begun, but is cagey about long-term plans.

The first step is to ensure that you're informed of the options. By moving the battleground into the living room, Sony and Microsoft are putting themselves in direct competition with a host of rival products. Good old BT, for instance, has its Home Hub, which offers TV on demand and downloadable content, while Apple has its Apple TV, and Archos has a similar product called TV+.

The advantage that the games consoles offer is that they are often cheaper and easier to operate. If you are a technophobe, a games console is almost certainly a better choice because they were designed with the very young in mind.

I have set up both the PS3 and Xbox 360 to play music and video, wirelessly through my broadband connection, and in both cases it took seconds. Both machines play back files flawlessly, although limits on speed can mean that video occasionally stutters on both systems.

Microsoft has a reputation for not liking to play ball with its rivals but I was surprised by how well the Xbox 360 dealt with a host of file formats, including video downloaded from the internet. On this, and with external hard drives, the PS3 sometimes struggles.

On balance, for playing games and downloading and streaming content right now, I would buy an Xbox 360, plus a wireless internet adapter. However, if games didn't matter, and I wanted a Blu-ray player capable of instant wi-fi connection but whose full capabilities may not come into play for another year, then there's no contest. It has to be a PS3.