Interesting question. I think, as a longtime gamer, that I'm usually only REALLY impressed with graphics at the beginning of a new generation and near its' end (for obvious reasons). However, graphics help set the atmosphere of a game, so even if they don't 'amaze' me, they can help to draw me in.
Case in point (kill me now): I don't find Call of Duty 4's graphics very impressive. It looks very nice, and the game is very immersive--in fact it looks great. But I was far more impressed with CoD2 when it came out, because it was more of a gigantic leap than CoD4.
Also, as much as we say graphics don't make the game, there are certain games that just wouldn't be the same without the most realistic-possible graphics. For example, even if it was released in the late 90's and was the best-looking game of its' time, with the same game mechanics and everything, I don't think I would have liked Gears of War on the N64. THAT is a game that needs the graphics to enhance the gameplay.
But those kinds of games are rare for me now.
Also, with regard to newer gamers thinking games look better, yes. My mom saw me playing RE4 Wii edition and thought it had the best graphics ever.