Some people just can't appreciate 3D models that are anything but photorealistic. SFIV shows us that, just because a 2D fighter moves to 3D graphics, it doesn't have to loose the artists touch.
Back on topic, the way KoF looks is due to the character designers involved. Most of the new characters were designed by Falcoon during his tenure. Meanwhile, the modern art is based on designs by Nona. The styles of both (especially of Falcoon) differ greatly from the styles of previous artists like Hiroaki, Senri Kita and Shinkiro.
On a related note, Shinkiro is now working for Capcom. You can see his influence clearly in MvC3 where the main criticisms against the character models (lifeless, looking like dolls, static) are also the main criticisms of his style in general.