You say the graphics are unimpressive and PS2 quality. While that isnt totally incorrect, its clear the focus went to the vast and detailed envyronments.
So, i really wouldnt call them bad graphics for the time. Its just that we are used to alot of focus going to the character models instead of the world. Personally i am glad they did that because you only see character faces during cut-scenes. Its good that with Xenoblade X things got much better.