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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.