Wouldn't people just complain that it was a bad game for not utilizing the full functionality of the 360 or PS3?

The production companies aren't concerned with the smaller group of people that play a game for good story or game mechanics, they're after the market as a whole (for the most part). The goal of the more powerful of the next gen systems is realism, the "great" looking games will be the big sellers.

People will make "ugly" games for the other two systems, it will just take much longer to make the good ones. The hastily made games will come out sooner, and unfortunately be inferior to all the games we'll end up waiting years for.