For me Bioshock creates the best world of any game I have played so far. Some of the graphics in that game (Albeit fairly close quarters) are just incredible.
"Best graphics" is always a cliche, smaller environment games (GoW, Bioshock) can fit more detail in than larger environment games (COD4, Uncharted).
I think GTA4 also deserves a mention for just the sheer size and variety of its graphics. I havent played either yet but, for racers, GRiD and GT5: Prologue are supposed to look superb.







