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Xenoblade would not have been possible in PS3 level graphics.
I love how you hardcore gamers live in a world of make-believe fantasy where resources and time constraints do not exist and games are these magical things that pop out every now and then.
Unless you are talking about resolution output alone, and not graphical assets, then it's possible, but the graphics will be the exact same, making them any more detailed would cost time and money, effectively reducing the amount of content they can make with their budget, resulting in a smaller game.
Why do you think Final Fantasy 13 took so long to make and in the end was so god damn tiny? It takes a lot of money to do graphics like that.