Graphical deterioration in gameplay?

I searched recent Reddit /r/Skyrim posts for "PS3 lag" and it seems that people playing Skyrim on PS3 still experience the issue you mention.

Explanation from Reddit - /r/Skyrim post, "PS3 Skyrim bug, needs some publicity":

There exists a bug in the PS3 version of Skyrim which, when your save file exceeds a certain size +6mb or so and you have been playing for about an hour, you'll experience a certain amount of lag, over time becoming the unplayable sort.

Currently the only remedy is to restart your game, resetting the timer until something builds up the lag. The real issue for now, is the certainty behind the fix. Unfortunately, this bug actually existed in Fallout 3 & New Vegas, though was less prevalent because it took much longer for you to achieve a save file large enough to cause a problem, however the bugs still exist in those games to this day and never saw a fix.

From a Kotaku article, "Do Not Let Skyrim Overflow Your PS3":

After Skyrim gamesave files surpass 5MB in the PS3 version, many claim to experience lag and stability issues. "Such as framerate issues, poor rendering, shoddy loading and non interactions fro finishing quests/cutting wood etc," wrote gamer PurpleHaze on the game's official forums.

"I can't finish ANY quest and i can't buy from ANY trader/npc and i can only talk to them after some laggy button pressing," continued PurpleHaze. So my gamesave is now 6mb (how i don't know since i couldn't buy/sell/talk or complete quests) and the LAG and framerate issue is so bad at this point, the game isn't worh restarting."

PurpleHaze, whose issues started after hitting 5.3MB, isn't alone, with other players experiencing similar slowdown once their save files pass the neighborhood of 5MB~6MB (some are reporting problems after reaching 10MB).

"My file size is growing constantly, and fast," wrote player AMG on the game's forums. "It's already well over 3mb in size and I've only played for 3hrs."

The current fix is to restart the system, which makes Skyrim playable. However, after an hour or two of play, the game once again apparently becomes laggy.

This issue does not seem to affect the Xbox 360 version nor the PC version. Even gamers with plenty of available PS3 hard drive space are having problems.

"It does not take long for the save file to exceed 6MB, roughly 16 hours for me, so playing the game in any sort of depth will become very troublesome," wrote Kotaku reader Toby.

In the above gallery, there is game footage of what looks like people experiencing these issues (note that they might be experiencing unrelated glitches, too). Players are calling the PS3 version "broken".

Also, see Gamesave size limit, lag and no interaction of NPCs | Bethesda - Skyrim forums.

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Possible fixes (from Bethesda - Skyrim - PS3 forum post, "Skyrim Performance Tips" by Gstaff, a Community Manager):

Always update to the latest patch. We continually improve performance with each update.

If you start experience framerate and performance issues, save your game. Restart your Playstation 3 and reload the save. If the performance issues persist, here are other things to try.

Turn off auto saves. This can cause temporary stuttering since the PS3 saves these files in the background This is most noticeable with large saves when fast traveling to a new area or entering a new area that auto saves.

Waiting for time to pass. Many things are running in the world depending on what quests you've done or places you have visited. Using Wait or Rest options, passing time will clear up some of these. It depends how long you wait, it may take up to 30 days for some items. Saving, resetting, and loading after this will have the largest effect.

Save your game and restart your Playstation 3 during long play sessions (6 hours or more).

If your game is freezing when entering water, make sure you’ve updated to the latest patch.

If you’ve updated to the latest patch and you encounter strange behavior immediately following application of the patch including queued messages appearing on the screen, just wait and let this process run its course. This is a temporary effect of certain Skyrim scripts correcting themselves after the update. Once this process is complete, make a new save and restart your Playstation 3.

Clear space on your hard drive. Clearing at least 2 or more GB of space for best results. Skyrim makes heavy use of the hard drive, and freeing up space on here seems to help many people. Hard drive speeds also differ in PS3 models. Some users have reported increase performance by upgrading their drives.

The PS3’s Safe Mode* feature includes options that can help with memory fragmentation.

Restore File System. Attempts to repair all areas on the hard disk drive where files can be saved. Corrupted data may be erased, which can help performance.

If you choose not to enter Safe Mode, you can manually delete corrupted saves within the XMB menu. Go to Games>Saved Game Utility. Within the menu, delete any corrupted save files. These files can be created from Skyrim and other games when a game doesn’t save properly (shutting down the console before an autosave completes, etc).

Rebuild Database. Will help with memory fragmentation on the PS3 HDD. Note: Using Rebuild Database will erase messages, playlists, changes made on [Information] screens, trimming information for pictures in [Photo], video thumbnails, video playback history and video resume information. The content that is erased will not be recoverable.

*Sony does not recommend using the options in Safe Mode unless you are experiencing issues with the PlayStation 3. Some of these options could result in loss of data.