I thought the SMS definitely had better graphics, but it just wasn't a mind-blowing difference. Better looking NES games could definitely match the average SMS games, but the best looking SMS games clearly looks better than what most NES games had to offer. (R-type, PS I-esp. the maze scene, Sonic, etc.)
If you compare games that were released on both platforms -- Double Dragon, After Burner, Renegade, etc -- It wasn't too difficult to see that SMS versions looked better.