The graphics dont look bad in D3. Its the Art direction that looks bad.

The teams behind D1/2 had a very dark/realist looking art direction, (aka the town in D1 vs the huge lord of the rings style places in D3) that made the atmosphere of the game hit home way more than the "fantasy" setting of the new game.

The whole game of D1 you were underneath a Church. It was very dark, simple, and creepy as hell.

D3 you are looking a sweeping (pretty) visuals of landscapes and oil paintings. Its a way different art direction.