There's a big movement towards emulators among the gamer scene I'm able to observe, because a lot of gamers are realizing that games haven't become fundamentally better in the last decade. Yesterday evening at a friend's, the Wii was forsaken for a Genesis; it's surprising how entertaining those games still are, because we've been conditioned to think you can't have fun without being cutting-edge.
You're right, we are conditioned to value the wrong things. The same game with more polygons is the same game.
30 years ago, my father and his brothers played Atari. I grew up with parents that both understood video games, at least somewhat. There's nothing objective about the way we view video games, or any other form of media.
For instance: I primarily look for media with some sort of emotional power, which is all-but-impossible to find in video games. I can think of perhaps five or six video games that had any emotional impact on me. I can name far more movies that have had a similar impact. My secondary search is for polish, and there movies also have an edge over modern games. The things I look for aren't what you look for, though - they're subjective. I remember having much more fun on an SNES than I did with, say, the Xbox. Your milage varies.
The upgrade treadmill is just fashion and marketing.