It's surely a case of diminishing returns as much as anything.
As with graphics, the closer you get to photo realistic, the less obvious the advances are going to be with each generation, even though the required power and amount of work needed increases exponentially. I'd say that with the few landmark titles of the nineties, and even lfs for that matter, physics were way more realistic than the visuals. To make a defining leap forward from there would surely take a thousand times more work than it took to get to that point. If you look at it like that, for me, gpl has physics way, way in advance of the visuals, and given the rate of technological advance, it's no wonder that graphics have moved further since then.
I do think that with some developers a little complacency has set in, though. "Good enough" is quite common, which isn't good enough most of the time, but I fear that given how much work probably is required to make "good enough" into "exceptional" we won't see many commercial developers making the effort.