OK. I'm a little late to chime in, but anyways.
The first game to make my jaw drop was The Legend of Xanadu II, on the first island. At that time I was just sampling the PCE CD library via emulation, before getting my own machine. I had already seem Dracula X and was blown away by it, but it didn't do anything that I thought was impossible on the machine. Don't get me wrong, it's a masterpiece and it raised my level of expectation through the roof. Xanadu II on the other hand, did things I didn't expect to see on the PCE.
I remember being fairly impressed by the boat scene in the beginning. It was the first PCE RPG I tried that seemed to match the graphical quality of the SNES RPGs. Still, since I was coming from the SNES world, I was expecting inferior graphical quality overall due to the lack of transparencies and other hardware effects on the PCE. Upon seeing the first area outside the village, I was shocked. I didn't expect to see things like the waterfall, and the seeming transparency of the slimes. I was again shocked once I got to the forest. The way the artists designed the trees is just amazing, and really captures the effect of walking under the leaves. Not to mention the flower petals blowing through the air... simply beautiful. I think this game is a good example of when good art design completely trumps technology.