While I myself would have prefered a Sci-Fi setting (heck lets just say Shock 3), I trust the devs that they know what they're doing and what they want to achieve. Do you rather want to see a System Shock 3 published by EA who only wants to see $$$ or a new IP that actually gets supported by it's publisher?
Oh and yes, System Shock 2 sucked graphically, and having Quake 3 and UT as competitors surely didn't help it to get any attention outside of hardcore gamers either.
But Bioshock is going to be a big-budget game now, with the latest and greatest Bells & Whistles so that the mass market gets attention too, but in it's core it's still about intelligent, emergent gameplay. Irrational would be fools to just turn it into a dumb clickfest FPS.