Yes, we have reached a saturation point with graphics in a way. There's only so much better it can possibly get before photo-realism and it's questionable if that will even have an appreciable difference in making better games.

Aside from that graphical cap though, there's also the cost of development. Making a new console now isn't like making a new console in the 70s, 80s or 90s - a console now is basically just a computer calibrated to be used with a controller and TV, and they're marketing themselves not just as game machines, but as "media hubs". Of course, designing a new computer that 1) works Microsoft, 2) works with old stuff (no one wants to abandon their whole game collection because the new system won't read it) and 3) isn't horrendously overpriced Sony is hard, it costs a lot of money and time to do intelligently, and even if you do everything right it can still flop. Thus, it's really in companies' best interests if they let a console generation last as long as possible, to wring out as much profit from it as possible before moving on to the next gen and facing serious diminishing returns. Nintendo is the only one who has a next-gen-kinda console out, and that's because they make hardware that's cheap but different from the last thing.