Sage said:
then label me a fool and spank me (please?)
Well, I'll just use a simple example. Consider the original Metroid game vs. Super Metroid vs. Metroid prime.
The original Metroid, while fun for its time, was really repetitive and had a large number of inane puzzles. This was really necessary for the hardware of its time for the simple reason that there wasn't any other way to make the game long. The puzzles had to be ridiculously hard for the game to take any reasonable amount of time to complete. We didn't think it was bad at the time for the simple reason that we expected this sort of repetitive, very hard gameplay at the time. It was a hallmark of the original NES, in fact. (note: you may be saying to yourself that this was an action game, there were no puzzles. Look a bit more closely: there were places where, for instance, you had to get very high by simply shooting the blocks above you, and jumping at just the right time to have the blocks below you reappear while you were above them...)
Fast forward to Super Metroid for the SNES. The SNES actually had enough storage (or, rather, the cartridges did) for there to be a large, varied world. The graphics, too, helped to make it look much less repetitive. It was no longer necessary to have inane, ridiculously hard puzzles to solve. So the game was now able to have length not just by making it hard to get past, but instead by giving you lots of things to do. The new hardware allowed the game to be less repetitive and much more fun.
And now let's move forward to the Gamecube, with Metroid Prime. This game really translated the original Metroid game well to the 3D world, and in doing so added a whole new level of immersion to the genre.
Now you should recognize that you only think of the previous two games as being good because of when they were released. If they were released today, with simply updated graphics but the exact same gameplay, you would think them to be poor games. Obviously, therefore, improved graphics doesn't always result in an improvement in gameplay, but improved hardware does allow game developers to have the freedom for other forms of gameplay, and therefore gives them the power to make better games.
The best games today are unequivocally better than the best games from five years ago. You may be able to pick out one game five years ago that has aspect X better than any game released this year, but if you look at the game as a whole, you'll find many other aspects to be much better in the game today.