The PS2 is graphically less capable than a GameCube. Any developer who is lazy enough to only dress up a PS2 game (considering the Xbox360 and the Wii both use DVDs - alleviating any storage space considerations) is not using the console to anywhere near it's full potential.
You're almost certainly right - but I put it to you that developers don't always exploit consoles' full potential. Take some multi-platform franchise, Star Wars: The Force Unleashed, maybe the Wall-E game or something like that, and you'll see a divide between the PS3 and 360 versions and those for the Wii and PS2. Perhaps we should forget this, after all any mediocre developer can make an ugly game, but it does contribute to the general impression. Gamecube ports don't help either, I enjoyed Zelda: Twilight Princess but it didn't wow me graphically.
Look, I love my Wii, but I watch Playr on Sunday mornings and the best Wii games don't look as good as the beautiful next-gen and PC games that are coming out. Wii graphics at the moment look a lot like the graphics of the later, and best-looking PS2 games. I'm talking about a console that has been around for donkeys' years, with software houses releasing their third or fourth title for the machine - all the tricks are known.
Now, the PS2 has a DVD drive as well. The issue isn't so much storage, so much as technical limitations to the numbers of textures and polygons that can be drawn on the screen, the amount of computation available to be devoted to nice lighting algorithms, physics simulation and so forth. Power will show in the end - I dare say the Wii games coming out in two years' time will look great and make my assertions about comparability with the PS2 look ridiculous.
Still, to get back on-topic, the PS2 is 'good enough', and has some games that really deserve to be played. I'm not surprised people are still using them.