Games like GTA4, Portal 2, Uncharted, Kingdom Hearts 2, Mass Effect, Arkham Asylum, etc have all shown that a game can have kickass graphics AND be good games. (admittedly, KH2 had some major story issues, but these were mostly related to Nomura being completely insane, not a lack of time or effort in story). Maybe go back a few generations. Shenmue, Metal Gear Solid 3, Perfect Dark, Super Mario RPG... All of them technical masterpieces AS WELL AS great games.
No, there is no correlation between good graphics and a cruddy game. In fact, games with bad graphics are often AS LIKELY OR MORE LIKE to be crap. Look at Hell's Kitchen, Grey's Anatomy, any Nintendo DS game by Ubisoft, Bomberman: Act Zero, The Sims 3 (Wii version)...
Since it's not generally the same staff working on graphics and gameplay, improving graphics will rarely have a negative impact on the game. If it's bad, it would've been bad anyway, the additional graphics budget simply makes it bad and pretty.
The only exception I can think of to this is Final Fantasy XIII, which was too linear as a result of poor workflow and literally designing world layouts and gameplay around work that graphic designers had done. But this is more a sign of rushed development and unwillingness to delay the game further for the sake of gameplay, rather than too much effort in graphics to begin with.
But to say that good graphics automatically equals bad gameplay? That is quite a narrow-minded point of view with obvious ignorance of plenty of evidence.