Square has always been a front runner in CG, at least from a gaming standpoint. Spirits Within looked amazing for it's time, and still holds up well, but it was the foundation for the CG we see today. In terms of realistic characters and environments Avatar really does step it up, even if by only a bit. The movie practically never looked blatantly CG (which even the best from a few years ago can).
This movie certainly has changed the course of future movies, if only for proving to a wider audience that 3D can be legitimate and not just for animated kids flicks or really lousy horror movies.