Not ny today's standards obviously but Aladdin on the Sega Genesis had very impressive animation for the time.

Yeah and games that were rotoscoped like Flashback and Prince of Persia as well. 

I just discovered rotoscope animation. Its remarkable how great it looks. Honestly better than a lot of modern stuff.

There's only one real answer: Dragon's Lair

EH, not a game. That's just FMV. You don't do anything but press an arrow for a predetermined sequence. Interactive movie but not a video game.

It has always been considered as a videogame. The intent of DL's gameplay was to use animation in an interactive manner, or what we know it as Quick Time Events used in so many games.  The only difference is that Dragon's Lair was all QTE. It was on arcade and consoles too, so if it's on a video game platform then should it not be considered as a video game? I think saying otherwise is just picking at straws.

I love this so much :D

Aladdin, the Lion King and the Jungle Book for Genesis, particularly Aladdin.

Vanillaware games. These are hand-drawn as well.