The reason the Dreamcast failed was not because it's graphics weren't better it was because they killed themselves by releasing so many failure systems the 32x, saturn, and sega cd all bombed. They wasted alot of money. Also they released it to compete with the PS1 The dreamcast was released in japan in Nov 1998. The development of the PS2 was first announced to the public in April 1999. The dreamcast killed themselves by releasing so soon, they got killed by people waiting for the superior playstation 2 instead of buying the dreamcast. They decided to pull out of the market while they were ahead, they took their money and became a full time developer. The graphics never really had anything to do with it, many other factors were responsible for the DC's death.
You won't have to worry about people not seeing the xbox360's power that is top on M$'s list, with Gears of war PD:0 and alot of other exclusives will be amazing graphics wise. Although generaly Ports do lack graphical improvment from where they are being ported, but for every port that is not astounding there will be a game that is.