I believe you've run headfirst into the uncanny valley here- it's easier to ignore issues in retro games becuase they aren't meant to look realistic, so you don't think about it. But starting in the generation you describe, we could really try for real-life style visuals. At the time, it was fine becuase it was the best out there. But now that we can do so much better? You only see what's wrong, not what was once right.
It's also why it's not an issue for games that were never meant to look realistic. Klonoa 2, the Puppeteer, Viva Pinata, & Katamari Damacy series look fine, becuase they were stylized to begin with.
Personally, I find I do surprisingly well with old games from a graphical standpoint- although granted, I mostly play the stylized stuff anyway. There's a lot of old-school mechanics that rub me the wrong way now though, and make certain games a lot harder to come back to (see any RPG with random battles.)