Hmm... after reading my own post, I started to wonder the same. Well, here's what I wanted to say originally.
El cheapo routers w/ firewall functions: Very limited firewall capabilities using NAT by hiding your network from the internet behind it (more recent one have limited filtering and inspection features). Pretty effective for blocking inbound connections but malicious outbound traffic (i.e., spyware) should be monitored/controlled using a software firewall such as ZA, Tiny, Kerio, Sygate, etc.
Hardware firewall: Although a hardware firewall used to be a dedicated device having the firewall functions running on custom designed ASICs, many of recent "hardware" firewall are a low-power consumption PC appliance (using AMD/Intel & flash RAM) with firewall software. However, the firewall software in these devices are much more feature-rich & very tweakable (at minimum, it will have the ability to inspect all packets that pass through the firewall and will either permit or deny them according to the configuration. It will also keep a log of every packet that passes through the firewall).