I see what you're saying, but I think the visual bar should continue to be raised as an aid to immersion. As you point out though, this can sometimes have a detrimental effect on other aspects (FFXIII is a great example imo). However, if used correctly and efficiently, they can help aid quality writing and gameplay.
Examples of this would be games like Mass Effect, Half-Life 2 and Heavy Rain where the animations are used to good effect to help generate emotion from the player. On their own, visuals won't do anything without clever developers that know how to use them, but they are a valuable aid.
I agree to some degree that the visuals don't have to photorealistic to invoke strong emotional responses, but how they're used is more important. Shadow of the Colossus where the sheer scale and beautiful art style help to evoke emotions from the player that no other game has really managed (actually, Journey does a pretty good job) and The Walking Dead game manages to push a comic art-style yet the gameplay, player interactions and animations do a fantastic job of emotionally drawing the player into the game.
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