Please excuse me while I rattle on a while about Shenmue and the system it ran on.
The date shouldn't matter, Metal Gear Solid 2 walloped the DC in everything except texture quality, but including overall visual quality.
MGS2 looked amazing to be sure, but there were DC games that beat it in terms of texture filtering (not just texture detail) and most DC games had a 640 x 480 progressive output mode or 640 x 480 with a flicker filter (at very worst matching MGS2s output).
For that matter, Shenmue wasn't the shining example of DC graphics. Sure, it had great art design, an incredible amount of assets (huge budget), and very detailed, intricate design, but many textures were point filtered and the framerate was subpar.
Shenmue's frame rate was solid 30fps 95% of the time - pretty good by todays standards! Interstingly, most of the slowdown occured when the game was streaming data in. Shenmue 2 had this sorted, and the only serious frame-slaughter I can remember occured when multiple layers of transparency were used in a cutscene.
It's worth remembering that many of the assets for Shenmue 1 and 2 were created in 1997 and 1998, before the system came out, and in some cases before they'd ever got their hands on the hardware and learned how to tune assets to take advantage of it. They could have looked an awful lot better if it'd all been made when AM2 were actually familiar with the system. Why very early DC stuff like the Shenmues, House of the Dead 2 and Bass fishing sometimes shunned bilinear filtering I can't quite work out. Maybe they thought sharper looked better? Mip-map avoidance I can just about understand, even if it was sometimes the wrong call.
Not to mention polygon counts that while high for DC, are almost ridiculously low for anyone who isn't a main character. (not that that is unusual for games) The environments weren't exactly high in polygon count either, though the game was still an incredible looking game.
I think the game looks "low polygon" even by DC standards (key characters being the exception). The general townsfolk are practically1950's sci-fi robots with (not always great) textures stretched over them. I think a lot of this comes down to, again, when the assets were made. Skilled, dedicated staff who were inexperienced at making assets for hardware they may not have propperly known yet.
The Shenmue 1 head demos (actually head+torso +environment) were made after most of the rest of the game (for E3 1999 iirc), and show a clear progression from most of the rest of the game (even taking into account the "tech demo" nature of them).
Oh, and I wouldn't downright say the DC had better IQ...
http://www.fort90.com/journal/?p=249
Scroll down on this page and take a look at Yakuza on Ps2 compared to Shenmue 2 on DC.
Shenmue 2 had pretty bad IQ (awful texture aliasing), and that's an awful screenshot of the game! The DC would clearly never match the PS2's polygon counts or framebuffer effects, but given a few years would have seen stuff that blew Shenmue away (especially given a similar budget).
I remember that SimonF was disappointed that no-one ever used the DC's dot3 bumpmapping (which he said was certainly fast enough to use), and that very little used its shadow volumes (that were bolted onto Shenmue 2 btw, and gave a nice effect of shadows shifting through the day).
Edit: Boy, this mentioning of Shenmue 2 really makes me yearn for a shenmue 3, even more epic than the first two. Are there any other games out there that are produced on the same scale as shenmue was?
Yeah, sad that Sega has let the franchise fizzle out pathetically.
I think it's getting reasonably common to see games on the scale of Shenmue now. Jade Empire and Oblivion spring to mind as examples of where we can get to now. Of course, budgets and teams are commonly much bigger than in the late 90's now, and tools make producing far more detailed assets far easier. With the vision, the budget and the staff you could do a quite incredible Shenmue 3 that was a big step beyond the old ones.
Won't happen though.