That maybe true for tons of non-AAA games but that's a different matter entirely ... 

Crysis was amazing at the time. It was the first game to truly implement SSAO and still to this day even with current gen upon us it still sports decent texture quality. A geforce 8800 GTX struggled which was the top end of the line card stuggled with Crysis. 

I confess, my experience with PS4/Xbone is limited, but of those I'd played, I wouldn't rank Forza 5, Knack, COD Ghosts, Titanfall, or AC4 above Crysis 1 visually. Heck, about the only ones I would are Ryse, Infamous, and Killzone.

Knack maybe a bad game but it's technical feats are comparable to those of Crysis. Sure Crysis may have a longer draw distance but knack has the advantage of having higher detailed models. I also think watch dogs on current gen consoles also look better than crysis too. 

Neither of those impressed me frankly; Knack was 30fps in small areas, and Watch Dogs being an urban environment had less to deal with in terms of geometry and alpha. (Much like Crysis 2, funnily enough)

Crysis also lacked in the reflectivity part of graphics seeing as how watch dogs handled it nicely when it's raining and I also think BF4 is more impressive than crysis too. 

Well, I think it's just a matter of polishment, because in some screenshots it doesn't look that bad:

I can't speak for BF4, I haven't seen it running in person, just in internet videos. For Watch Dogs, the only graphical aspect that really impressed me was the open water simulation.

The game has already been through three engines, it's been in development almost 5 years and is due out this year. Nintendo likely picked it up because it was almost done and could be polished up and released quickly and cheaply.

And UE3 it's self is capable of far better visuals than Devil's Third, at least 3.9 is (tho I don't know any actual game that actually uses the latest version of UE3 most use 3.5 or a highly modified earlier version) just look at the 2010 Samaritan demo. Graphics clearly just aren't a priority for the game. There is no point rewriting UE4 to make it compatible with the Wii U when you could just modify UE3 to have the features you want with less effort anyway. The main benefits for UE4 is the better tools and workflow for creating content and implementing systems (work that is already finished on Devil's Third) as well as out of the box support for the latest platforms which if you have to rewrite it to support older architecture is a disadvantage compared to UE3 which supports it with only minor modifications.

As others pointed out, moving to UE4 probably wouldn't make a significant difference. Devil's Third is not the full potential of UE3.

A lot people probably don't know games like Bioshock 1, Bioshock 2, and Splinter Cell: Blacklist use UE2. Yet those games look better than a lot of games using UE3.

Ubisoft didn't even bother to put a water dispersion animation when the bullets hit the surface. I don't know about you but the water simulation will suck like always in the past until we can get an SPH based model like this one here. 

This model doesn't simulate surface tension too but it does model particle collision properly which is a big improvement over our the water technology we've used so far.