A contrasting company would be someone like inkle's 80 days - that's was an odd iPad game that was hard to sell just on screenshots, but it was marketed brilliantly and had a vision throughout the product that was reflected in taht and the buzz around it was and is huge because of that
The whole point is that it is doubtful that they will stay solvent if they put more money into production values on that platform.
Nice graphics are very expensive. (They are more expensive than any other aspect of game development, in fact). If it seems unlikely that enough people will buy their game given that type of investment, then it may be a good choice to stay away from that.
On top of which, maybe they just don't want to spend all their time doing graphics. Maybe they want to work on the story / world / etc.
Alarmingly true. Good 2D graphics for a game like Avernum could easily scale into the tens of thousands, if not hundreds of thousands, of dollars.
(Source: my spreadsheets. :-/ )
It doesn't matter how much work you want to put into your graphics, story, world, or whatever if no one knows that your game exists.