I've been trying to think what I can add to this thread without repeating too much of what everyone else said. Here goes...
1st up, out and out the best engine has to be the J+D / R+C one. I prefer R+C as a game, but Naughty Dog are responsible for much of the technology in both, and it just plain eats the competition for breakfast when looking at the raw performance figures. It didn't stop J+D2 being, frankly, a bit of a mess - but for technology they rock.
Next, kudos to VIS for State of Emergency. It may not have been everyones cup of tea as a game, and it may have that typical Rockstar (lack of) morality - but the amount of stuff they managed to put on screen and still maintain a stonking framerate on a PS2... well it impressed me anyway.
Burnout 2 - shows how much you can squeeze out of a middleware engine if you share an office with the developer and spend all your time rewriting it from the inside out. The only downside was the drop to 30fps in split-screen mode - made it unplayable for me, it just didn't feel the same (thats my excuse for losing anyway).
Soul Reaver 2 - sod Primal, as far as I'm concerned Soul Reaver was doing very nicely textured and rich environments several years earlier, and at 60fps too. Primal had nice graphics but the technology just screamed average to me. Crystal Dynamics - please rescue Tomb Raider....
Dropship - overlooked title, somewhat average gameplay, graphics vary wildly from blurry mess to about as close to photo-real as a PS2 gets - but almost always at 60fps. However run it through a PA and it's shifting a pretty impressive number of polys. Why did Sony sideline this team and hype everything else? I always wondered if there were some kind of anti-Psygnosis internal politics going on...
GTA3 - they cut a lot of corners and made a lot of compromises, especially on the graphics. But they also delivered a massive streaming environment which allowed an unparalleled amount of freedom for the player. I also love the day->night cycle and the weather effects, which can make the otherwise "uncomplicated" graphics look pretty damn good. I think the audio probably counts as a technical achievement in my book too...
Baldurs Gate
ark Alliance - image quality to die for, and all on a PS2 (the luxuries of a limited viewpoint letting them cut enough corners to have a huge render target for AA), and also a very nice line in water physics.
Prince of Persia - only sneaks in because they had a fairly limited development cycle for this, and still pulled out something really impressive. Lovely solid environments, fantastically fluid character movement...
Well those are my initial thoughts...
