That's because you're thinking HD and Blu-Ray on the average gamer part. If you're thinking about the experience the PS3 is bringing to the gamers instead (Oblivion, Resistance,... Super Rub a Dub, flOw, etc...) then it's fairly acceptable. Plus, for gamers that have traded in their PS2 for this beast, they could still play their PS2 titles on it (and it even reads very scratchy discs).
I occasionally use it as a DVD/music player, too... because I have a bunch of scratched-to-death DVDs that no DVD player in the house would read... and a bunch of old music albums that not a single CD drive in the house would accept.
But back on the topic at hand... it is indeed true that the experience matters more to me than the graphics... even though graphics would boost the visual impression drastically. Heck... I get addicted to Super Rub 'a' Dub and flOw more than Resistance. (Oblivion still rules over all of them but... that's beside the point)