I actually hope that the power of the new consoles is used for anything at all besides graphical enhancement. We need strides in AI, larger level design without loading screens, more NPCs (imagine if Skyrim's towns looked anything like the lore says they should), and advances in the way we interact with the games.
There have been great games that have a lot of graphical prowess, but they also cost 500 million dollars or some shit to make. Bioshock 1 used a modified Unreal 2 engine, and I can't say that the advancements in moving to 3.0 with Infinite was really worth the extra costs, crunch time, and smaller areas.
Unfortunately, the "hype machine" as it were is always pushing how close they've come to "emulating reality". The PS2 was called the "emotion engine". Killzone 2 used fake bullshit in the name of graphics. We've seen it recently with Watch_Dogs and to a lesser extent Dark Souls 2. The thing is, I've seen visuals and art direction make a game great (Rez, Ni no Kuni, Journey), but I can't think of a game that compensated for shitty mechanics/story/design with eye-popping graphical power.
I'm rather cynical about these "definitive editions" on PS4/X1, I understood HD collections but the OP has a point about the difference seeming a little marginal here. Developers will learn the hardware more, and the best looking stuff is never during the first year or two of a system's launch (if you're into that sort of thing).
It's important to note that all consoles are going to be limited by this fact - they display video onto a flat surface that 95% of the time isn't capable of a resolution higher than 1080p. I think that's why Sony has the right idea with developing an Oculus rival, and why Nintendo's heart was in the right place with the different gimmicks they deployed (likewise for the Kinect, I guess).
Since I babbled on about a bunch of nothing, I'll make my last point. My favorite games ever of all time are Chrono Trigger, Dark Souls, Brothers, Shadow of the Colossus, and The Binding of Isaac. None of them make my eyes bleed when I go back to play them (in fact I think Chrono Trigger still looks gorgeous), and none of them are graphical powerhouses unless you count SotC bringing the PS2 to its knees. Developers should be thinking about how they can use hardware to create experiences, and there's so many areas in need of advancement besides texture quality and lighting engines. This got me thinking about MGS1, particularly that I hadn't played it in like 10 years. In my mind's eye, it looked fucking fantastic, almost realistic even. It was hilarious when I popped in the PS1 disc and saw what I should have been visualizing, something very blocky and blurry by today's standards. The story, characters, and great stealth was what ingrained itself in my mind, and the graphics were just a means to deliver all of that.
Sorry about the general tangent on graphics...I'd say it's too early to call any console "in trouble" yet (at least besides the Wii U), and I wouldn't say a price drop + game inclusion is any kind of sign of defeat. The 3DS didn't take off until the price drop and big game, and Microsoft really did need to do something to narrow the price gap between it and the PS4. If I were to prognosticate though, I just don't see the X1 ever outselling the PS4 this generation but it will do well enough to keep Microsoft in the business if consoles even exist 5-7 years from now.