Read this from the bottom post up. Don't start at this one!
That being said it does have drawbacks, the reason it can be free is because the game creator runs the server not Sony. If the devolper goes bankrupt say goodbye to your online game. Maybe the devolper comes out with a sequel you perfer the older game, sorry the devolper stopped supporting those servers. A good xbox example is EA games. All games by EA, madden, Battlefield, have dedicated servers run by EA, and yes quite a few of them have been put down.
Maybe you should actually play the PS3 and you'll realize lag is Virtually non existant.
The PS3 has dedicated servers, that means everything goes through the server of the game creator. It isn't run by the connection host not at all... A dedicated server runs the EXACT SAME WAY as the way microsoft's does, execpt instead of one of the gamers playing the game doing the process of recieving infromation, processing it, and sending it out. The game creator has a server that does that. But, the servers are specially designed to do this so whereas someone regular home internet connection the dedicated server is much larger and go do it much quicker, therefore has less lag and can accomadate more people.
Wait... Did you seriously say that the PS3 online is crap? Have you ever played it?
Xbox Live only tells you where the rooms are. So if you start hosting a game, the Xbox will send a signal to their server, Basically saying "I'm hosting." If people look for the games, they will send a signal to Xbox Live Servers It will search the list of people hosting to and give you results the match you citrea. Then you can select one, and the Xbox Live Servers gives your Xbox the IP to connect to. Then you connect to the IP that you requested, and the connection for playing is between you and the host, not with Xbox live servers. Stats, like kills get sent to the Xbox Live Servers. You're position, voice and speed, direction, Ect. Ect. goes between host and you.