I honestly think this is basically a case of lowering expectations, and with good reason.
They probably already know that even with a big hardware performance increase, the games aren't going to actually look that much better, at least not to the extent some people are expecting. Developers probably can't actually afford the time in man-hours and tech that it would take to create games that make current gen games look ugly, even if the hardware would allow it. Based on the look of current Pc games, I honestly don't think they're a big enough jump to do the job, and it's doubtful that any next gen console is going to put the best PCs to shame.
I would imagine that the more detailed your world and characters get, the more expensive the games become, and most companies are having a hell of a time affording to make current gen games.
In addition, every time graphics get a little closer to photo-realism, the ceiling on making people say "wow" gets a little harder to bust through.
Every sensible company will put a focus on other ways of differentiating their products next gen (interface elements, online gimmicks, and other stuff)
edit: also.. Frames per second, AA, and those sorts of improvements aren't going to sell people on a console. Most people need more drastic changes to make them want to buy something. That's why interface elements are probably going to be a more important selling point.