Very true. The simple graphics also made it possible for many players to create their own content with less complicated tools like Photoshop + Transmogrifier instead of advanced tools like Maya, which also contributed to its success.
Minecraft was also a great achievement in terms of game design and gameplay, yet had simple graphics, and consequently was easily moddable, which greatly contributed to its popularity and success. But is was considered "AAA" when it was released, and is it considered "AAA" now that Microsoft bought it (even though it's essentially the same game)?
So how important do you think fancy graphics are to the definition of an "AAA" title, versus accessibility (in terms of how many people can play it because of its lower hardware requirements, and how many people can mod it because of its graphical simplicity)? And how important are game design, gameplay, popularity, making money and other issues like moddability to the definition of an "AAA" title?
Another way for a game to achieve easy (but more limited) moddability without limiting its graphical complexity is to support advanced built-in tools for user created content (like Spore for example, which has advanced built-in specialized tools as opposed to supporting simple generic third party tools).
Subsequent versions of The Sims had much fancier graphics, and much more advanced built-in content creation tools (like create-a-sim), but that made it harder to create content outside of the game (because objects were 3D meshes instead of 2.5D sprites, and texture maps for character meshes were not nearly as simple).
The original Sims 1 team (which I worked on) only had four core programmers, but it was developed over many years before the point that EA bought Maxis and put more people on shipping it. So The Sims 2, 3 and 4 were much more typically AAA-ish, and had vastly larger teams working on them. (The Sims Studio became one of four major sub-divisions of EA.)
I think small indie teams would be better off focusing on game design and gameplay instead of fancy graphics.