Casual gamers likely do not care *too much* about graphics but as everyone states how PS3/360 is for "hardcore" gamers, those people will care. Those types of gamers are the ones who pay attention to some of the hardware specs and details and there's definitely evidence to suggest that the PS3 and 360 has a higher proportion of those people than the wii.
The PS3 can definitely do low end graphics like the wii, that's obvious. However, how well do you think the typical PS3 owner will react to a game with that level of graphics when the PS3/360 has promoted themselves primarily on their HD abilities. The biggest claim over the wii is that they are graphic powerhouses and that its the true "next gen". If you recall, Sony originally stated all their games will be in 1080p (yeah right).
Even for wii owners, there's a limit to how much graphic reduction they will accept. Everyone made fun of Cruisin for being ugly and a previous gen game, the same for a lot of other games and yet its the console that should be least concerned with graphics.
Now translate that to the PS3 which people supposedly do care about being HD ultimate KZ2 whatever graphics. Do you think they'll accept a previous gen game as much as Wii owners will?
Bod is right on in that budget increases to make certain games in HD will kill certain genres. Games like Fire Emblem or other SRPG's have just way too small of a userbase to ever justify a $10-20 mil budget. They have the advantage in that their userbase are extremely loyal and will buy it regardless of how it looks, thus they can skimp a bit on graphics. In that case, they have to go to the system with the largest install base to make sure that they're getting as much of that loyal fanbase as possible.
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