Prototypes save time, money... Maybe even lives. But what exactly constitutes a prototype?
We build prototypes that quickly and simply communicate ONLY the core value of the idea we are testing. That is one, maybe two, core concepts that are the thing you think your users can't live without. This makes the prototype small and ensures that we are getting the most accurate, reflective data possible during product validation.
So why ugly? We've created very beautiful, compelling graphics prototypes in the past... And it wastes time. If you need beautiful graphics to convince people your idea is good, then it's not as good as you think. Beautiful graphics will draw them in for a short time, but it will not keep your users coming back time and time again.
Conversely, if you demonstrate your idea and the graphics are "ugly" (read: utilitarian, un-cool) and your users completely get the value of what you're doing, you're GOLDEN. Because then when you DO add beautiful design, your users will definitely be engaged early and stay engaged later.
Keep it small. Keep it ugly. Save time and money. Oh, and lives.