Graphics does not make the gameplay suffer from not being worked on. engine coders don't generally do gameplay, just like how milkmen usually aren't nurses. even if bethesda somehow only hired jack's of all trades then they could simply hire more engine guys.
anyway- the xbox 360 can do...
cloth physics- as seen in gears of war 2 and mafia 2
detail textures- call of duty and halo
mass ai- gears of war, assassins creed and l4d
realistic weather effects- latest unreal engine
tessellated water- halo reach
godrays (we just know they will be over the top, but they look nice anyways)
that apparently extremely effective way of rendering distant objects in halo reach- halo reach
semi decent physics- half life 2
destructible physics- bfbc2 (obviously- as an open worlded game nowhere near as much things are going to be destructible, But it would be nice for a lot of objects))
SEEING YOUR LEGS (more to do with game design- but anyway)- dark messiah, mirrors edge.
Refractions - half life 2 (i am talking about glass here, but water works too)
climbing- donkey kong?
dx11 tesselation would be nice too, but thats a computer thing that hides Bethesda's modelling fails and allows people to do this to models... http://legitreviews.com/images/reviews/1117/unigine_dx11a.jpg ANKLE DESTROYING COBLE STONES!!!