Upgrading the graphics is certainly doable with FFXI. Since all the game data is on our computers to begin with and all the servers do is tell our computer where everything is, what graphics/skins to upload from the database, and what animation or action an object is doing it certainly wouldn't effect the gameplay server side.

But like others have said, it's pretty late in the games predicted lifespan, and rehauling graphics would certainly be overly painstaking and costly for a game who's remaining lifespan is unpredictable.