Um is this your first gen transition? People always say next gen games look like polished current gen games. Don't you remember xbox 1.5? Heck just go read all the old forums out there. If you dig deep enough, there are people even claiming diminishing returns for the ps2 launch.

My take on this is related to screen size. When the PS360 came out, the most common screen size was 32-40 inches ion a larger screen in a home. Now, an average large screen tv is 55 inches or even 65 inches. The graphics change is much more obvious on a large tv. I have a 70 inch tv that my XB1/PS3 are hooked up to. When I switch between them, there is an obvious difference.

Thats because the GPU power went into getting good resolutions and frame-rates.
At the same res and frame rate, PS4 would kill the PS3 on graphical effects.

It's just the latest cgi bonanza with cutting edge techniques to reach photo realism. In the line of Avatar, Inception, Hugo, Life of Pi, Gravity. The success of those movies does not seem to correlate with the quality of the story telling.

New sorts of improvements start with a powerful cpu, lots of headroom to experiment. Unfortunately the cpu is the part that got the smallest upgrade this gen. Natural speech recognition and generation, with AI to support actual conversations with game characters will be a game changer. cpu's are still too weak for that atm, and unlike graphical improvements, the game industry will have to figure that out themselves instead of copying the movie industry.
I'm already happy sound is getting some new love with MADDER. Hearing the same environmental effect filters for generations was getting stale.

It's not hard to understand, launch games and near launch games aren't going to look that great as say a game 3 years from now.

We're at the start of the generation. What did you expect? X360 games were not very impressive, at all, until Gears. PS2 gen 1 games looked awful, and the last few games on the original Xbox and Gamecube looked marvelous (even GOW2 on PS2). Give this gen some time.

Do people even remember how early PS3/360 games looked? Aside from a few exceptions most of them looked like upscaled PS2 titles.

yep, I was just playing this again on 360


Or to compare two launch exclusive turds (by general opinion, not mine)

I didn't think Kameo was bad.

I have also yet to play Knack so I'll reserve judgment until then.

Diminishing returns is very real, it is also a gradual effect. Luckily processing power increases exponentially not linearly so we are good for a fare few years yet. Once you can't easily distinguish between real-time and current pre-rendered visuals then we will have hit the wall. Give devs 2-3 years to update their engines and production pipelines before you judge. What you have seen so far is mostly old techniques at a higher fidelity with a few gimmicks on top. When games are built from the ground up from art direction to tech to production pipeline to optimization we will see much better results. So far we have seen last gen art tech and production with next gen polish, as devs didn't have modern hardware when they started development 2-4 years ago.