As bad as the X360's D-Pad is, Microsoft has made worse. MUCH worse. Try hitting a cardinal direction on a SideWinder Freestyle Pro.
As for the DualShock 3, the only issues I have with it are the altered L2 and R2 (thankfully, there are attachments that make them curve forward like proper triggers) and how the twiddlysticks are a bit too far inward and close to each other. Ergonomics-wise, the X360 pads are far better, but they fail in having loose twiddlysticks (especially irritating if you play PC games with the things) and losing pressure sensitivity for face buttons compared to the original Xbox pads. (Meanwhile, the DualShock 3 has pressure sensitivity on EVERYTHING that isn't Select, Start, and Home. Yes, even the D-Pad.)
As for the merits of gamepads as a gaming interface, it depends on the game. Some games are built around gamepads and thus play best with them. Other games play best with KB+M. Still others need their own specialized peripherals, like a racing wheel or a flight stick and throttle, not to mention the appropriate pedals. (Bonus points if you add a TrackIR for head-tracking.)