The visuals are there for the same reason Mario has a princess to rescue. It would just be a music simulator on its own, but plunking through it, you might wonder, "Why am I doing this, this is just five buttons. DDR for the less-than-aerobic." There's something about the sight of your avatar clutching a sick axe in front of a huge crowd that gives it that extra ounce of "Oh! Dang! Better not screw up!"
Character/band customization... putting your logo on the drumhead... Every bit more customization you put in, the more invested you are.
(I'd like to think I'd still be into it without the visuals, but that's kinda hard to prove.)