Source has great Graphics… i really prefer them over some things i’ve seen with Unreal Engine 3… (for example, bits/peices of lighting from Source is really much better, in my opinion, Also Source has Dynamic Water Reflection in 2004, i still have yet to find a decent or easy to use water material in UE3 {which totally makes HL2 Gorgeous in many parts)
Where Source Fails is Tools…
UE3 Provided an editor that has EVERYTHING in it… (Which i could care less if i had to move back and forth… but it provided easy access), Lighting showed a preview of what to expect when rendering, and can really show you what your materials will look like, and all of that…
CryEngine 3 is the best though, Everything is real-time! Moving lights are real-time, and no lightmap\radiosity computations), the game, the physics can be done real time as well
while i went a bit offtopic… i’ll answer the post with a simple Possibly…
Source engine graphics are Possibly dated… but theres been massive improvements year to year… from HL2 -> Orange box ->l4d series->p2…
we can and will see better from source… will they be the “BEST”… maybe… if its not the best… they will make it work… I loved the graphics quality of the source…
UE3 lighting (mainly indoors) can be very saturated… where as in many source engine games you’ve seen nice smooth Realistic lighting…
also for some people who don’t know why i went off on a mini light rant here, lighting makes the game, it makes the effects like bump\specular
Source\ CE3 have more realistic lighting i think, and its very easy to get a decent quality from both…