If we assume that GeOW 1 and 2 are the best looking games, there's a good explanation: Unreal Engine 3. The engine is the limit, not the console. Take Killzone 2 for example. They build an engine from scratch, for the PS3 alone. Of course they will squeeze more power out of it. Since the X360 is a lot like a pc, the pc engines work fine for it. But that does not mean it doesn't have more potential. CryEngine 3 is the first glance of that. And even that engine is multi-platform. If they create an engine solely for the X360, it will be able to push the limits as well.
The X360 has an advantage on the GPU side for developers because of the unified shader architecture. Just put something in, the GPU will take care of it since every lane can make every graphical calculation. That makes it easy for them and will refrain them from seeking the real limit of the GPU. They just give it work instead of seeing if they can make it work more efficient.
Truth does not fear investigation
