I think when most people talk about the graphics being outdated, they're talking about the technical aspects of it. The resolution of textures, the general quality of models and the amount of detail, etc. It's certainly a very box-y looking game, with a very clean look with no a lot of detail.
The art direction and designs on the other hand, are very, very good. It's a really attractive looking game, and the character designs are probably some of the best I've seen in western RPGs, in terms of looking distinct and cool, instead of boring and ugly.