There are diminishing returns for graphical technology, so with every generation it takes a greater processing power improvement for the same perceived improvement in appearance; and there will certainly be a time when you can’t notice a difference in quality from one generation to the next. With that said, I don’t think that we’re close to the limits of improvement in graphics and I think one of the primary reason why the jump from the previous generation to the current generation did not seem that impressive was because it also included a jump from standard definition to high definition resolutions.

Yes but isn't this something that can be done in this generation as developers better understand the hardware and push it to it's limits?

So you're saying graphics like Wii Sports could be done on a Gamecube? No way!

There will be a big jump in graphics, there always has been and it won't change this time either, especially with this generation likely running longer and manufacturers wanting the next generation to run even longer therefore needing powerful hardware to last the years.

Wii graphics are good enough for most people. That's why they're buying it over the PS3/360. Graphics today are like sound in the 90s. One of the major battles in the SNES/Genesis fight was on their sound cards, and what fidelity sound they were able to produce. Once the PS1 and N64 came out, which were able to replicate CD quality sound, it was no longer a selling point. CD quality is good enough for 99% of people. Wii graphics (Mario Galaxy level, not Wii Sports level) are good enough for 99% of people. If Sony and MS want to kill their businesses by selling to the 1% of people who really, really care about screen resolution, it's their funeral.

I think graphics will improve, yeah, but not in such a significant way, or at least that won't be such a big selling point as it used to be, as someone stated before me.
To tell you the truth, back in the days when I got my N64 graphics were a HUGE issue for me. Nowadays, though I enjoy the beauty of Uncharted, Ninja Gaiden Sigma and so on, I am much more interested in art direction. That's why Muramasa is one of the games whose visuals I fell in love this generation.
And yes, now more than ever, I am looking for both inmersive experiences and loads of fun. I am having a blast playing games from the prior generation that I missed and in most cases I am enjoying the visuals very much too.
I guess that's what a portion of the gamer population will be looking for on next generation. I mean immersive and fun experiences. And of course, a great online community.

You are right.

Everyone knows that the Wii is just two Gamecubes taped together. I know this to be true since I have heard it about 100,000 times.

the tech for graphics, etc. to focus on that point, is always jumping hugely in general - videogames just rides it's coat tails.

However, with the rising costs of developments due to increasing graphics, I think the desire for big jumps is slowing, and so it is likely that the focus next gen will be less on pure graphical horsepower and more on the overall gaming experience plus linking to the ever evolving online medium (one area where Nintendo lag which could give them trouble next gen IMO unless they're careful).

I think you're also going to see a focus more on SDK, development tools and methods of reducing costs. If that succeeds, then I expect to see (at some point) another focus on big graphical jumps. Assuming Avatar, etc. really is the start of a trend then obviously we might see 3D joining motion controls as more of a standard than a curio.