I do believe Pete Hines is mistaken. If graphics mattered so much, why is it that so many people prefer Morrowind over Oblivion when Morrowind has the worse graphics? Or 1.8 million people like an indie game with 16x16 textures?
The problem here is a miscommunication about what graphics are.
Visual appearance matters, and that's what Pete is talking about.
Technical specifications, texture resolution, lighting, etc... these things don't matter except in what you do with them to make an aesthetically appealing game, and yet those things in their raw form are what most people mean when they think of "graphics".
Judging a game's graphics by those things is like judging a painting by the quality of brush used to paint it, or the fineness of the paint.
In my opinion, Morrowind looks better than Oblivion. It's textures are smaller, it's view distance is worse, it's lighting is less advanced. But it looks better, because
the art and imagery they made with those lower specifications is higher quality than Oblivion's.
On topic, but tangential to my post: The Witcher 2 is a visually astounding PC game, and I don't think it's fair to compare its graphical capabilites with a multi-platform game like Skyrim.
TW2 is going to be a fantastic game, by the way. It's the only thing I'm anticipating nearly as much as Skyrim.