There's two sides to graphics, and this is where I kinda go both ways.
1) Graphics technology
2) Artistic use of above.
Graphics technology can continue to advance, but one thing that's striking me is that a lot of 'new technology' looks like utter crap. Look at LAIR, for example. Does it use a lot of the advanced technology? Yes. Does it please the eye? It's going for a pseudo-realistic approach, but everything in it shines as tho it were covered with turtlewax. You see a mountain and it does not look like a mountain looks in a realistic context. The graphics technology is being used, but the lack of artistry is exposed.
It goes beyond polygon mapping, and concept art. The higher the quality the graphics engine, the more effective it is at exposing the artist's lack of mastery.
Compare that to Prince of Persia or Bioshock. These games -ooze- color. Each area has a tone to it, and color is used as a tool to convey emotional impressions about what each location is about. Subtle use of composition, where the technology isn't being showcased, is being -utilized- to present an attractive experience.
Valkyria Chronicles didn't care about pushing a graphical envelope, it developed a graphic engine solely to convey an artistic style. -That- is where technology should be driven.
Does everyone remember Final Fantasy: The Spirits Within? Definately a showcase for what could be done with computer technology. The use of detailing in it was far beyond anything done at the time.
And yet, people couldn't stand how inhumanly robotic everyone moved. The sheer level of detail and perfection only served to make everything creepy, where the imperfections became noticable.
The industry should spend less time looking for bigger/badder/stronger tools and should spend more time developing the skills to use them. Tool development should be made to the demands of artists, not of marketroids. What do you do first? Do you make yourself the ultimate sportscar, or do you get your driver's licence?