I think the issue is a bit more nuanced. Graphics have gotten so good that it is relatively easy to get character animations which sit in the uncanny valley.

The uncanny valley is bad. You can have beautiful, photorealistic graphics everywhere, but if your characters are in the uncanny valley, the overall aesthetic is more similar to a game which didn’t have the photorealism at all.

In the past, the goalpost was at a different spot, so putting all the resources towards realism still wouldn’t get you into the valley, and everyone just thought it looked great.