1. Already the graphics on the iPad 2 are pretty good. I would argue they're sufficiently good and only getting better (with better software and successive generations of hardware);
2. 3D realism has I think overshot the mark. Nintendo has proven--and continues to proven--that you don't need the latest and greatest 3D engine to sell consoles and games. Remember too that many people are nostalgic about arcade games and systems from the 80s and 90s;
3. Increased realism in games has really blown out art costs. I would argue that art now constitutes the majority of even big budget titles. The more realistic games get the higher this cost. Improved tooling has mitigated this somewhat but the cost continues to rise.
There is significant economic incentive for game producers to curtail art costs by developing on lower-spec platforms.
3. The iPad is a multi-purpose device so, ultimately, more people are likely to buy it or devices like it than consoles (IMHO). Console makers continue to stretch the capabilities of consoles (adding VoD services like Netflix, etc) but ultimately it's still a TV. The iPad is a computer (albeit one with limitations). This will however take time.
I've been saying for the last year--and I continue to say--Sony, Nintendo and Microsoft should all be scared about the iPad.