I'm the kind of guy who is impressed by 4 stationary fixed-position 3-color 8x8 sprite tiles without z-priority on the NES. The last game I've played aside from AI War was multiplayer Pong for the 2600 on a 7800, and I do also have games like Crysis, Bioshock, and World in Conflict. Not only do I agree that graphics don't make a game fun, but I also can appreciate good looking-graphics regardless of how far they push the hardware (and also be impressed when they do).
I think AI War's graphics are pretty great, save for some of the ship graphics and the less-than-exciting menus. I can't say I'd be too excited about the proposed grouping feature for the interface, though maybe seeing it in action would make a believer of me (seems it would remove both functionality and information). I happen to like tons of sprites in a blob; they're awesome stuff.
That screenshot looks nice.