They matter for me. Gameplay and fun come first, but good graphics make the experience more immersive. I can't look at a PS1 shooter and feel more in the game than in a modern shooter. The details, enviroment, sound, they are miles ahead of the old games. Of course that, still using shooters as an example, Medal of Honor still is one of my favorite ones, it's an amazing game. But it can't be more immersive than Battlefield 3. The realistic weapons behaviour, sound effects, dust, etc, improves the experience. Videogames always had the objective of becoming equal to the reality (except when trying to use different art styles), so visuals are a key part on the experience.
I wouldn't like to separate people like this, but reading this thread, the guys that are mostly going for graphics are HD twins owners or PC gamers. The guys that come with the "PS2 graphics are good enough" argument are mainly Wii owners, so we are getting a lot of biased opinions here.
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