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Engines can be toned down significantly to run on different platforms these days. Epic has made the Unreal Engine 3 work on the iPhone, but that doesn't mean that we'll be seeing Unreal Tournament 3 looking as good coming from the App store. The graphics for the 3DS will look as good as the GCN with some better shaders probably.
I'm by no means an expert on the subject but from what I've gathered. In terms of polygon count it's somewhere between Gamecube and Wii (which is pretty good). But where the system really shines is in shading and texturing. The system has the potental to process very detailed textures and impressive lighting effects.
If you haven't already done so you should youtube "Resident Evil Revelations" that should give you a glimpse of what the system is capable of.
Yeah, the general consensus is that the GPU can output similar performance to the Gamecube and Wii. It's basically better or at least on par with the best systems of last gen including PS2, Gamecube, Xbox, and Wii. But the thing that makes the 3DS' graphical capabilities stand out is the shader support. The system can support some advanced shaders seen only on Xbox360 or PS3, so the games can sometimes look comparable to those games (such as Resident Evil Revelations or MGS3D).
If you were to just casually glance at a screen of RE:R, you might mistake it for a PS3 game. Texture, animation, lighting, and shading wise, there's not much of a difference at all. The difference comes in when you look at the character models, which are built off lower polygon counts and are a fair bit more geometric looking that RE5. I'd say the same comparisons are true for MGS3D, especially considering Kojima confirmed the same quality models were used in the demo as MGS4. And he even said he was rushed to create the demo and a final game would look much better.
We still don't know the base CPU or memory of the system. Or for that matter, the specific model of the GPU used (though we know the series and general architecture enough to make a fair comparison). But the general consensus is indeed that the 3DS should be able to handle at least what the best of last gen could pull off. Above and beyond, you have the better shaders and lighting, but we don't know what else it can handle. Suffice to say though, no tech demo i've ever seen has ended up pushing the system to its limits, so this is just the beginning.
NEVER judge a game you have not played. -Granville