It's a simple proven fact that *modern* PCs have more potential than consoles. Consoles came out 6 years ago. They are running on hardware that is at least 6 years old that is also cost effective (in some form or another) for the company making it. In the 6 years since consoles have come out, chipmakers and other hardware manufacturers continue to churn out better products. That's their job, and they won't stop just because of video game consoles. Therefore, throughout those 6 years, PC hardware has been able to advance, well, 6 years past console hardware. PC games have the ability to look much better than current console games. Look at what people can do with DirectX 11 for instance. It's not a flame war, it's just fact.
When a new series of consoles come out, they will have hardware that's at least 6 years better than the current ones. Their visual quality will be improved, just as how the PS3 looks better than the PS2 which looks better than the PS1 which is better than a Super Nintendo. Why some games look better than others on the same system, that's just a question of processing power over visuals. You can have a http://en.wikipedia.org/wiki/Heavy_Rain. http://en.wikipedia.org/wiki/Minecraft.
Just Cause 2 is able to be so big because there isn't much processing power involved aside from graphics. The NPCs are all generics. They are spawned and populated randomly. They walk down a street, and they keep walking. When you get too far away, they vanish. One flaw that I noticed with Just Cause 2 is that it also loads select vehicles within a certain window of time. Meaning, you don't have the potential to see all the vehicles at any time. You'll see a handful of vehicles, and after a period of time, one model is replaced by another. When you crash a vehicle, it goes away. When you kill people, their bodies vanish. You play in third person, so the textures are of a lower quality. The enemy AI's are very stupid. The forests, streets, villages, and other areas aren't very dense with detail, to save on processing demand.
Oblivion, on the other hand, keeps track of everything. It knows what NPCs are supposed to be where at what time. It knows that if you drop an item, you'll be able to go back and get it no matter how far away from it you go or how long it's been. When you kill someone, they stay dead. The NPCs are nearly all specific, no random spawn NPCs. Oblivion lacks some of the shortcuts and hardware optimizations later games had the advantage of having. In development, the game was being created for unknown hardware limitations. It's better to play it safe than sorry.
Skyrim now has the advantages Oblivion did not. It's shaping up to be a beautiful game. Some things have a lot to be desired visually, but overall the quality is being vastly improved. I've never seen a game try to pull off dynamic snow before, and the only game I've played with good dynamic clouds was Just Cause 2. And those could have used some improvement