While playing I was this game, my brother walked in, looked at the game, and remarked "how do you make a videogame look better than this?" His attitude was that Xenoblade's graphics were such that everything looked like how one would expect it to look like, and it looked good, so why bother going much further?
His approach to graphics is pretty much:
NES - 2D that looks like crap
SNES - 2D that looks great and therefore is all you need for 2D graphics
N64 - 3D that looks like crap
Gamecube/Wii - 3D that looks great and therefore is all you need PERIOD
I think that art design is the most important thing. One thing that was a bummer this gen is that North American devs took over and Western games usually look like boring horseshit. There are exceptions of course but companies like EA and Activision make generic looking games. There is the cliche "everything is brown" criticism and it is totally valid. I prefer the Japanese style for videogames but unfortunately that has diminished as Japan has for some reason decided that home consoles aren't cool anymore.
Of course just because tons of Western games have a boring art style doesn't mean that HD is boring. Ideally I would love to see what Monolith Soft would do with some more power. What I really wanted was for NINTENDO to make HD games. I wanted to see what they would do with it. I don't give a **** what Activision does with it.
Back when Nintendo decided to not support HD my concern wasn't that their games wouldn't look as pretty. My concern was that Nintendo wasn't matching the competition and therefore any third party that decided to make a game for the PS3 or Xbox 360 would leave the Wii out and the system would have lousy third party support. And I was 100% RIGHT about that. I also thought that it was stupid for Nintendo to dedicate the next 5+ years to a system that could not support HDTVs which were becoming the new standard for televisions. Well, here we are in 2012 and a console that does not support HDTVs comes across as embarrasingly archaic. Nintendo just wasn't futureproofing their system and I thought that was stupid. And it was. Missing that feature was archaic not even two years into the Wii's life.
Oh, and for all this talk about art design being more important, most of Nintendo's games this gen LOOK LIKE ****! They made a system that was behind the times in graphics and then made games that would have looked unimpressive on the Gamecube. Xenoblade, Retro's games, Skyward Sword, SSB Brawl and the Super Mario Galaxy games are exceptional. Most first party Wii games have a bare minimum graphics approach that suggests that Nintendo's real goal was to see how little of effort towards graphics they could get away with.
Xenoblade's world is truly impressive but this isn't the norm on the Wii. I put up with all sorts of half-baked nonsense before this showed up and for a while it looked like NOA wasn't even going to allow that. Xenoblade is ambitious, unafraid to be complex when needed, looks great, is a new IP, doesn't force anyone to put up with unresponsive motion control, and just tries to be a great game without any conscious effort to appeal to the mass market. NOA probably didn't want to localize it because it seems to represent the exact opposite of the typical Wii experience. Xenoblade is the type of game I feel Nintendo used to make routinely and is what I want and expect from them.