Better graphic might not be the best plan. The idea is to help soldier relive past traumatic experiences while still being clearly not real. The more that line is blurred between real and fake the less it might help. The of the greatest example for this is valiant heart: the Great War. Even though it has very simple 2d graphics, it delivers the best narrative, heart wrenching stories out there. All set in world war 1. Better graphics doesn't = a better game. If anything the more you poor into graphic the more you take away from everything else.
I agree with that, I think once they see that these are just memories, not actual life events anymore, their road to recovery becomes more clear for them.