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Graphics is going to be important if you want to feel the immersion. Atmosphere is built very well with great graphics. But it also depends on the game you're playing. No one wants to see a photo realistic mario lol.. thats just plain weird. But action/racing games need the graphical edge to take them that extra step. Puzzle and simple platformers can have it a bit easier.

COD4 feels so much better when you're playing it maxed out at 60fps than if you played it on low settings at low res. Graphics improve your perception of the game, and hence your enjoyment. You don't want to play a game that looks like ass, even if it does have great gameplay. They work in synergy.