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Legend11 said:

It's not just graphics that is seperating games from this generation and the last.  There is also AI and physics (take a look at Star Wars: The Force Unleashed for an example of some of the new technologies that are possible because of the HD consoles and gaming PCs.  It can also be seen in strategy games in which it's now possible to have hundreds and even thousands of units (or the crowds in Assassin's Creed as a non-strategy game example).


Although there are some costs associated with improving AI and Physics, they're tiny in relation to the costs associated with the enhanced graphics; consider that Elebits used the Open Dynamics Engine and had huge quantities of physics based world interaction and was still a very inexpensive game to develop, and the improvements in most game's AI will come from licencing some middleware and adding one or two scripters. Thus, the increase in budgets of these games are going (almost) entirely towards the graphics.