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Calling the Xenoblade models "absolutely atrocious" is a bit of an overreaction. Clearly, they weren't full-spec models, but that is because they HAD to compromise, and they did look like eggs with eyes painted on, but they weren't exactly eye-gouging; they were presentable, and Takahashi and his team did well in making them look the best they could with what they had.
The models in Xenoblade look great, though, since Takahashi and his team are working with more powerful hardware and HD assets. It's clear they're using the same approach as Xenoblade Wii, but I think the stronger hardware allows them to blur the line of what looks good, and what looks like eggs with eyes painted on, a lot, lot more.