It's all relative to the games themselves. Here's a good example:
I'm currently playing Majora's Mask. There are quite a few glitches in the game. They're minor, but they're there, and most have to do with sound issues because I'm playing it off of the Collector's Edition Gamecube version, and the game is damn near impossible to emulate perfectly.
When comparing the glitches in Majora's Mask with glitches in more modern day games, it's rather odd. Although the glitches in, say, Oblivion are probably as small or the same as the ones in Majora's Mask, they stick out WAY more.
Plus, older games, to me at least, always felt more... complete. Before I started Majora's Mask, I beat Ocarina of Time, and even though it was probably the 40th time I've beaten that game, I felt more accomplished than I did when beating games like Mass Effect, Halo 2 and 3, and even Half Life 2 Episode 2.
There are some exceptions to this, but I'd honestly say that for the most part older games are better. Is this nostalgia speaking? Well... most likely. But I stand by nostalgia. It's always been a good friend.
Now, to answer the idea of "realism making a good game great", let's again use Majora's Mask. In that case, FUCK no. If it was realistic, the Woodfall Temple would consist of an entry way and then a worship chamber, not tons of puzzles and traps and enemies. That'd make the game boring beyond belief. While in games like CoD 4, I think it could actually spare to be a bit more realistic, and it'd be more fun that way. Let's say they added a new damage system sort of like Fallout 3's, and you need to find a medic in order to shoot right again. It'd be cool.
Now, if you're talking graphics instead of gameplay, well... usually realism makes things harder to recognize, while games with a stylized art form are more easily remembered. I'm never going to remember what 99% of the soldiers I fought with in CoD 4 look like, but I'll always remember Sgt. Johnson's. So, I'd say it takes a mix. Be realistic, but make sure you put your own spin on it.