Of course good graphics matter, most everything in a videogame matters, but it's not one of the main things that makes a game good.
Why has this myth about the irrelevance of visual quality in videogames come about? Here's why: it's down to the ambiguous nature of the term "graphics". When we say "graphics", it is often not clear whether we are talking about the aesthetic quality of the designed image, or the technical virtues of that image - resolution, detail, lighting effects and so on. This has entailed an idea that "graphics whores" are people who think that games are always better if they use the latest GPU and have the most fanatically detailed environments. The truth is that such considerations are largely irrelevant. The true visual sensualist considers the visual style independently of the system that it is running on. That is why we can agree that Vib Ribbon looks splendid. That is why I prefer Wip3out to WipEout: Fusion in every way, including visually. Wip3out's environments are not as detailed as those of its successor, but they have an aesthetic coherence and an overall design character that is far more pleasing to my adrenaline-glazed eyes.
This points to a response to the tired old graphics-versus-gameplay argument from a historical perspective. If Defender is arguably as good as or superior to any modern-day shoot-em-up, the argument runs, that must be because visuals are irrelevant to gameplay pleasure. After all, look at it: it's low-res, it's not 3D, and so on. But to argue this way is rather to miss the point that Defender remains an extraordinarily beautiful game. There is no point attempting to improve the visuals because they accomplish their job with such great élan in the first place: those fizzing rainbow lasers, those particulate explosions, the amazing amount of menace squeezed into the few pixels that constitute a Mutant. It is the style of the visual image, rather than just the brute quantity of information packed into it, that counts to the true graphics whore.
Similarly, the discerning graphics whore does not care how good an image looks in screenshots if it doesn't move properly. For some reason, there's a tendency in first-person shooters - Red Faction and Max Payne especially spring to mind - to marshall grimly all the computing power available in producing moody, pseudo-realistic environments, and then to populate these environments with insultingly jerky approximations of human movement. Good animation is an essential tool to encourage the player's psychological projection into the gameworld.
The ideal situation, of course, is for the brute informational quantity embedded in the visual image to grow, without stultifying style. Because it can hardly be denied that better graphics (in the technical sense) can allow for innovations in gameplay. You wouldn't improve Defender by upgrading its innards to 128 bits, but you would make an entirely different sort of game - such as Halo - possible.
The problem we have with contemporary games is not that everyone is concentrating on flashy graphics per se, but that aesthetic innovation has lagged behind technical innovation, for understandable and purely practical reasons - the pressure of development cycles, for instance, or the plain fact that there are never enough truly talented artists to go round in any industry.
But when authentic artistic imagination is married to contemporary technology - as in Ico - the result is a game where looks are supremely relevant, firstly because they define so beautifully the psychological atmosphere of the game; secondly because, with the technical power available to create Ico's gorgeously grandiose architecture, they actually constitue the context in which such haunting gameplay is allowed. In fact, the distinction between those two terms - graphics and gameplay - is almost obliterated. And we can count ourselves fortunate that such a game has only now become possible. We can, finally, rejoice in being graphics whores.