Umm, yeah, actually.. D3D 8.0 introduced vertex and pixel shaders, which makes it a lot easier to do things like per-pixel lightning (which is awesome).
D3D 9.0 introduced, as the most important features, a much improved HLSL, floating-point texture formats (HDR), multiple render targets (rendering the same thing to several places with one call).
Version 10 added, most importantly, shader model 4.0.
Sorry, I couldn't resist proving you wrong.. A higher D3D version certainly gives much added capability for good graphics. By upgrading alone, you achieve nothing. But with more work, it can be done.