But the 360 is showing signs of age, and it can't keep up with the evolving graphics. Yeah, it can do well but it wouldn't run with the best graphics currently available. The consoles simply aren't as powerful as (some) computers.
Graphics can still be, literally, 10-15 times better than in Oblivion and still work perfectly on consoles.
If you think the graphics of Oblivion are the best that can be achieved on consoles, you are very, very wrong.
Of course consoles can't handle as much as a computer, but they can surely quite a lot before they "reach their limit".
Here's a clip showing CryEngine 3 on Xbox360 / PS3, vs. CryEngine 2 on PC. It's still quite better on PC. But seriously, if the consoles can't handle graphics, that's no valid excuse to "drag down" the PC's graphics as well.
Because the graphics on the consoles are simply then just not that good as on PC. This is exactly how Crytek has done it, as you can see on the video.
Video, forgot (LOL, thanks andyw): http://www.youtube.com/watch?v=2WJG14uLA3k