Artists often scale their work back, reducing the quality of textures (lower res) and reduced polygon counts. Keeping the same budgets we use now, there would still be a net gain in visual fidelity just moving to newer hardware. Gaining ALL the bells and whistles will cost more, but no one needs to do this, it's simply an option. Plus, the newer engines are becoming more efficient for the designers. Hard to say how much more it will cost, if it costs more at all.
Not to mention, gameplay will change with newer graphical techniques too. It always has and always will, for better or for worse (often for worse).
I dunno, sure, current-gen stuff takes time to build, but there are far more graphical assets in that scene and many more micro-level details that I don't think "higher res textures" make up the whole story. Remember, going from something like UT99 to UT2003 didn't just result in better textures and lighting (side-effects of the tech improvements) but also made it so that building a level went from taking maybe an hour to potentially days or more. Higher-fidelity assets also take longer to make, because artists can "cheat" with lower-res stuff quite a bit.
Obviously workflow and production change to accommodate new tech, and a lot of things can be done to speed up level creation (tying vegetation to materials, so you can have rock, grass, trees etc. automatically placed simply by laying down a texture on some terrain), but you still have to hand-tweak a lot of that stuff, and with more details there's more to obsess over.
I do a lot of (amateur) level design and even my non-professional-quality work still takes a ton of time - if you have a bunch of pipe models instead of a pipe texture, for instance, you're not just mapping a material to a surface, you're doing that and then positioning many 3D objects together in a way that has to make sense logically or at least aesthetically:
That relatively small area (not entirely pictured) took me a few hours to build. If I had even more detail to work with I could imagine it taking two or three times longer even though it's a space the player might inhabit for all of 10-20 seconds. Now when you add things like physics objects, dynamic fluids, particle effects, dynamic lights, buttons, doors, levers etc. to script and other game objects that are animated or interactive on top, suddenly you have even more detail to create
and you have to ensure they work for gameplay.
Obviously there's a difference between me fumbling with UDK and trying to figure out the best way to use the assets available to accomplish something, and a pro who has full knowledge of the tools and assets on hand, but it's still not an especially quick process to create game content, especially as production flow is such that you might do 5-10 different detail passes over the same areas over and over.
