They are working with the following constraints in the 'standard' conversation scenes:
- automatic lip sync
- canned animations driven with a scripting language
- universal skeleton for all characters (except the volus, hanar and elcor)
This is because of the 100+ hour of speech in the game. The only way to do it better is to completely throw out everything they've built. But they really had to leverage as much as they could so that they could build the sequels in ~2 years each. I can't even imagine how long it must have taken to build the first game, and yet it feels unfinished compared to ME2 and 3.
Also, they did improve on what they could - shadows, shaders, lighting are all vastly improved from ME1 and even from ME2, and the new assets are of an insane quality as well (trust me, I've seen them).
Now there's the chance for a complete rewrite with the nextgen consoles around the corner. I really, really hope they'll keep both a sci-fi and a fantasy series going on, although I'm not yet decided if I want them to keep Mass Effect and Dragon Age.
ME's ending certainly makes room for a different setting, but they could also make games taking place before the galactic war.
ME has a LOT more dialogue. For a start there's Femshep, there's the ability to take a huge combination of squad members to any mission, then there are the paragon/renegade approaches to a lot of situations.
ME conversations are all completely procedural. HR conversations are all individually recorded. The game's much shorter and has a lot less freedom, too.
Even ME1 had animated normal maps.