The first time you booted Crysis 2 on your PC, it probably didn't have the post-release DX11 patch and Hi-Res texture pack installed. After installing both of those features, the game definitely exemplifies a better caliber of graphical savvy. Otherwise, the basic DX9 version of the game essentially IS a high-end xbox 360 game, but with anti-aliasing.
But, the engine has a lot of potential and no one is going to argue that Crysis 2 really began to fully explore it (it definitely didn't). It was developed with more longevity in mind than the previous Cryengine, and apparently is something that Crytek wants to be able to market in the same way that Unreal engine is licensed to developers.
What you should really be worried about, more than engine capability (because Cryengine 3's actual capacity far far far exceeds the engine from Crysis 1 and Warhead), is the art design. That has nothing to do with the power of the engine, but is a lot more likely to make or break the feel of the game. As it stands, I'm a fan of all 3 currently available Crysis games, but the new one does not look very promising to me. The premise seems ham-fisted and the concept of a jungle in New York does not sound appealing to me, at least not for its potential artistic merits which I doubt will be realized in any significant way.
I thought Crysis 2 graphics with Directx 11 were really impressive, from the screenshots they've released of Crysis 3 I think it's gonna be very visually stunning, assuming the art design is good it should be a really fun game to look at.
Like casual was saying, it really isn't the engine's fault that Crysis2 started out looking so poorly........it was essentially gimped in every possible way to make it a smooth console runner, and then they (along with the CryDev community) released the good stuff later.
CryEngine3 (and CryEngine2 for that matter) are both capable of delivering visuals that modern hardware still can't handle. I don't see CryEngine3 going away any time soon....if it does, it will probably have more to do with arbitrary renaming than actual engine advancement.