Thought about that myself some time ago.
With graphics, you can only go so far. Once we reached photorealism (which we are pretty close, look at the models in GTP5 for example) in games, there isn't much beyond that. Other styles like cel-shading are also almost perfected (that new Naruto title for PS3 looks just like the anime, if not better [compare: computer made graphics <-> handdrawn art]). Toy around a little with the draw distance in Oblivion and you cann see the complete continent (given your PC can handle it).
Sound... we have uncompressed multichannel audio, his very own game - MGS4 - is the prime example. We have reached a level of quality that mimics real life sound (given the right equipment, i.e. high-end speakers).
Physics were touted to be the next "graphics" in term of develpment being focused on. Well, we made some great leaps in the last 25 or so years (compare the gravity in Super Mario Bros. to the one in GTAIV), but there is still some work to be done. I'd say that within the next 10 years we have all the game related physics so far advanced, they are nearly life like. Look at Battlefield: Bad Company, that's a big step in the right direction, with the destructable environment and such.
AI is also becoming more and more advanced. Star Wars: The Force Unleashed is said to have a AI so advanced, the enemies react to your every move, every change of surounding environment (i.e. grab a ledge when you force-push them away). AI will never be 100% like another human, but it succeeds in being a challenge.
So, once we mimicked every aspect of the real life (interactivity, AI, graphics, sound, physics, objects on screen), what's next?
I'd like to see development & research going deeper into the subtile things. The white noise, although everyone hears it everyday, is not yet in every game. SpeedTree is amazing and I somtimes find myself staring at some trees that move with the wind. Then there is raytracing, more realistic water, etc.
I hope that once we accomplished these things, developers start to take more care of gameplay and story. Otherwise, the games will all start to look, play and ultimately BE the same over and over again.
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