The exaggerations in anime/cartoon designs communicate or symbolize something about the character (ever notice how Cloud's hair is neatly combed on one side of his head, but completely out of control on the other?...). In that light Barret's design *did* lose something when designers had to tone down his muscles.
But... As well as being extremely realistic (even attractive in some cases), they also give you a different picture of the characters. The new Sephiroth is a lot gloomier than the old bishie design. My same friend thought the new design made Sephiroth look more like a heroin addict than a villain with a real motive (keep in mind that he thinks Sephiroth is the coolest character in the FF series). But IMO looking at it really makes you see how Sephiroth fell apart after discovering his identity. I'd think of more examples, but Seph jumps out the most for me.