When the dragon first appeared, its artificiality ('though it was very well done) let me view it as a symbol, and therefore to endow it with the qualities of dragons: ferocity, power, etc. myself. I didn't need it to breathe great blasts of fire; the smoke coming from its mouth as it fought Siegfried was enough to establish that.
I think films have, in the end, two choices: special effects must be perfect, or symbolic. I don't mean to imply any poverty of taste in the second category. Take Crouching Tiger, Hidden Dragon, for example. The flying scenes put a number of my acquaintances off the movie; they considered them silly. I took the flight as a symbol, of physical mastery, and this allowed me to enjoy both the beauty of the scenes (like ballet, wire-work, only instead of trying to stay in the air, one struggles to stay on the ground) and the imformation the flying conveyed, like: Jen Lung flies much better than Shu Lien does. I think it's because martial arts come so easily to her (she outpaces Jade Fox so quickly it frightens her), while Shu Lien has earned her skills through hard work. Watch how Jen easily out flies her, but Shu Lien outwits Jen in exchange. On the ground, away from all that nonsense, Shu Lien is far the better fighter. Even when Jen has the Green Destiny, Shu Lien can, through her brains (she's far the smartest in the film; watch her deal with Jen after the sword is stolen, the first time trying to be subtle, the second time rather straightforwardly) defeat Jen--without using her favored weapon. Hmm. Long side note. Anyway:
On the other end of the spectrum are perfect special effects. I went to see Pirates of the Caribbean recently, and the pirate army doesn't jar in any way. They just are skeletal pirates cursed by Aztec gold (this is not a spoiler, people, and anyway, if you can't predict the entirety of the film from the previews, you're not paying attention. Not that that ruins the film; there are, after all, skeletal pirates and Johnny Depp doing a mean Keith Richards/Pepe Le Pew impression), and because they move so perfectly, one accepts them as part of the movie.
I'm not sure, though, that even perfect special effects would work in a more serious movie. If I wanted to frighten someone with skeletal pirates, even flawless computer graphics would still be computer graphics, and in a more serious setting, disbelief is harder to suspend (think of a little kid, telling himself that it's not real. Even he, with a slightly less developed Weltanschauung, knows in his head that skeletal pirates aren't really out there). The best one can hope for is that the audience will play along, and have a "good scare": one they walk away from with a little adrenaline rush. This is why one should never, ever, show the monster in a horror movie.
But with symbolic special effects, it could work. There's nothing terrifying about shadowy corners and strange camera angles, but add some violins (and I think the music is as important as the visuals, in Die Nibelungen and elsewhere) and people will jump when a cat wanders on screen (the origin of the term "cat scare"!).
I've babbled enough for one night, I think. But I got the word Weltanschauung in, which is always a bonus.
Oh! I know! The difference between perfect and symbolic is like the difference between, say, a Petrarchian sonnet, and a Sappho fragment. A Petrarchian sonnet is nice, and I'm sure Laura would have loved it, but it doesn't affect me the way "I desire not the honey nor the bee" does. Or "to the girl with hair the yellow of a pine-pitch fire". Not to diss Petrarch. Anyone against the Aristotelians is a friend of mine.
This post has to end before I start muttering about 'brights' or something ('smugs' is very nice. I like Dawkins; he's taught me almost everything I know about evolutionary biology, but man! How junior high is this meme?). Maybe I'll post my thoughts on divinely inspired migraines and Hildegard von Bingen next. That should drive off all accidental traffic.