Art design and graphics are on the same end of the spectrum. They are the same thing. They are just the visual part of a game. Very few people care that Kirby's Yarn or Murumasa look amazing when the gameplay isn't notable.
Gaming is an interactive medium. The best games don't focus on the visual aspect, but make the visual aspect serve the interactive element of the game.
I could give a huge list of games that are purely functional in their so-called art design, starting with Donkey Kong, and including plenty of "hardcore" games like Counterstrike or GTA, which could hardly be described as realistic but really don't have a notable style either. And of course there are sims like Gran Turismo or Madden which do go for realism, but do so for the sake of the gameplay. But maybe the most compelling case is games like Guitar Hero and the Sims, which have terrible, ugly art design, but no one cares because it doesn't get in the way of the gameplay.
Let's go back to 2006 when the question was gameplay vs. graphics instead of art design vs. graphics.
"[Our former customers] are unable to find software which they WANT to play."
"The way to solve this problem lies in how to communicate what kind of games [they CAN play]."
Satoru Iwata, Nintendo President. Only slightly paraphrased.
