Ok lemme break it down.
First Xenoblade WAS developed in an HD environment, thats what happens games are developed with incredibly high poly models which are compressed heavily and thus lose quality. Even running Max Payne 3 on pc with the same filters and forced to the same speed it would look better because its a 40GB file that has completely uncompressed models. to make things trun and have them fit on disc, stuff gets compressed. So when you run Xenoblade on Dolphin it looks AMAZINg at HD resolutions because it re-renders the models already there and they don't lose any quality. You also don''t need a supercomputer to do it. Glossing over all of that, The Witcher 2 exists.
Now when it comes to money,thats no excuse, DQ8 came out what 7 years ago, and re-rendering it and plopping it at a resolution higher then 640x480 it looks better then some new games and thats sad. The costs of doing the exact same thing haven't gotten greater they've gone down. Flat out, studios are wasting money doing less with more. FF13 didn't take years because it was hard to make, ff12 didn't take years because it was hard to make. There are DOCUMENTED and PUBLIC issues OUTSIDE of development.
Which brings me to Versus 13, you know how great it looks? Well a small centralized team made all that, while being pulled to work on third birthday, and being pulled to work on 13-2, and being pulled to work on type-o and being pulled to work on 13, and being pulled to work on birth by sleep, and being pulled to work on tech demos and losing more and more members every year. It still looked great despite all of this because even though making games is hard its not as hard as they keep saying. I bitch up a storm about the stories, but there have been 4 HD Tales games. If it takes 8 years to make a game, its because you're doing something wrong. Its not money, its not difficulty, its because they're not doing a good job.
As for "raising the bar" well
When FF1 looked like this:
http://imgur.com/JkmN3 Phantasy Star Looked like this:
http://imgur.com/b7pn7Every area was more populated with more scripts, the sprites were bigger the game did more colors and had things like shading and form that was not completely modular.
Look at Wild Arms which came out a few months before FF7, was made by a waaay smaller studio and had less development time:
http://imgur.com/kwaVCin the early 90s Tengai Makyou had cutscenes that look like this:
http://imgur.com/sdagGI love Final Fantasy, they've never been a series of invention but rather popularization.
Game development is a long costly process, but AAA development is hopelessly fucked in terms of budgeting.