Quality, as in suitable subject matter/content, you can certainly make an argument for a decline. Quality, in terms of making use of the advanced technology in modern computers, is a different story.Partly the underlying cause is the sad decline in the quality of game content, so much violence, horror, and dark themes are less and less interesting to players,
I don't take much notice of what is available in the market for gamers but the few ads I see (often when updating my drivers) certainly show a lot of "Lord of the Rings" type dark themes and/or violent crime genres. I have nothing against dark themes in fiction, movies or video games because I suspect that the real world can often be even darker. The fact that there is a strong demand for these products says a great deal - but you don't know if that demand is driven by the consumers, by clever/intensive marketing or both.
I don't believe that "overly photo realistic" is a bad argument. If it was then movies, TV show and the nightly news are guilty and what exactly is "overly"? Presenting reality, as it is, is not the problem it is often peoples false perceptions of what is reality that can be the problem. I would certainly like to see more "photo realism" (overly or not) in Trainz and I believe that it will eventually come with (expensive) hardware upgrades.
The PlantFactory offers developers a great opportunity to add to and improve the visual quality of Trainz. An opportunity that I hope is taken up.