At the end of the day, they're still good graphics. Both games have good graphics. GT4 has more realistic graphics. People don't realise that "more realistic" and better aren't always synonimous (sp?).
On the technical side, nobody has ever pointed out that GT3 faked it's shadows horribly, or that the textures on the car models were really blurry, or that there were no real reflections. Those are GRAPHICAL issues. They were compensated for with good artwork and engineering. Nobody seems to realise that texturing different shades and colors to make the cars look more realistic is actually a way to help fake the lighting engine. Everybody notices that Forza has the "colored with a crayon look", and critisize it. That's because it uses a genuine lighting engine, with real time per-pixel shadows, like PGR2 did.
It doesn't look real, but it looks damn pretty. If I'm playing a video game, I'm not going to be fooled into thinking that it's real. I would have to be mentally challenged to do so. So if I were given a choice between "looks more realistic" and "oooooh that's purdy", I'd go with the shiny one with the cool graphical effects and hi-res textures. Hence, I think PGR2 has better graphics then GT3.
GT4 is another matter completely, as they've implemented real time reflections and sweet lighting, as well as sharper textures on the roadside as well as the cars. I still think it's prettier than Forza, but time will tell.