Game graphics aren’t anywhere near “good enough”. It’s still amazing to see what can be pushed out of hardware in titles like Gran Turismo 5, Metal Gear Solid 4, Crysis and the like. The poly counts are getting crazy high but lighting and shading seems to be the most important area now, to achieving realism. There’s physics too but that’s another story… ;)

Realism isn’t necessary to sell a game. Smash Bros. is approaching, or has passed, 2 million copies sold in North America and it’s not made with cutting edge technology. Its merits are mostly in its brilliant design.

What’s important is that if a game is pushing to be the most realistic, its design has to benefit from it. If you’re trying to make “The ultimate driving simulator”, you’re going to want to aim for as much realism you can cram into it. You wouldn’t necessarily want to push the graphical limits of technology to make something like Katamari Damacy, where the lack of realism adds to the fun of the game.

Have we reached a point of diminishing returns? These beautiful blockbuster games keep coming out so I suppose we haven’t reached that point yet. When all these companies start going out of business that’ll be the sign to slow down, if most companies haven’t figured it out by now.

As Dominic mentioned, one of the biggest problems with realism in games is animation! Games look great but their cinematics and gameplay have terrible “game animation”. That almost always kills things for me. I haven’t seen much of GTA4 but I hope they went all out on the game animation.

Mouse over the images to see the scene with and without ambient occlusion. To be fair, it is still rather subtle.

I would also disagree that increased polygon counts necessitate a trip to the uncanny valley, as you hint. It’s all about technique in art, after all. More pixels in digital photography show more flaws and more ‘reality’, for instance. I would also direct you to the in-game work of Takayoshi Sato: http://satoworks.com/

His stuff generally has a lot of emotional power and imperfection in its polys. I think people generally just don’t take the time to make that happen.

On the other hand, yes we are pretty much in seriously-diminishing-returns-land. The point isn’t whether people can spot the differences, it’s how much development effort is required to justify the feature. Per-pixel lighting and normal maps effectively doubled or tripled the time it takes to create an art asset, and while most gamers can see the benefit clearly, if you had to translate that inherently subjective benefit to an objective figure (in essence, the game industry’s standard practice of cost-benefit analysis) you’d probably be well shy of the 100-200% increase in workload. Nintendo’s strategy with the Wii is confirmation of this: why spend twice as much for a 10% benefit?

I know that I can tell the difference between a CRT at 75Hz and one at 80Hz, and make an effort never to sit in front of any CRT which updates slower than 76Hz. When I used to do a lot of drawing, I could tell a 91 degree angle from a 90 degree angle just by looking. Now, I don’t draw, and have lost that particular habit / ability.

Another reference point: Years ago, a ‘first world’ visitor brought a portable transistor radio set to a remote African tribe. We all know what kind of sound you get out of a 10cm mono speaker, and it was probably a shortwave signal, with plenty of (heheh) bells and whistles.

The tribespeople were amazed at the radio set, and were quite sure there must be tiny people inside talking and playing music. This was demonstrated to be false by opening the back of the radio. The visitor left the radio with them, and when he returned a few years later, he discovered that all of them could tell the difference between a transistor radio and a someone actually present. They were all amused to be reminded of their own previous inability to distinguish between the sounds.

So I think you can attune your senses to these kinds of fine differences, but at a certain point it’s difficult to distinguish between whether there are diminishing returns or whether you’re just developing Aspergers’ light.

Life is short, and if you have never tasted fresh onions, dried onions at least can give a valid impression, which is all that’s needed for a good game, in my opinion. (Although it is the juicyness rather than the authenticity that makes the fresh onion more appealing).

Honestly, I do think we are slowly approaching a point of diminishing returns. The overall look of newer games is becoming quite impressive, so to improve we have to focus on the details. Where before, throwing more polygons made things look MUCH better, now things are so high in polygons, more becomes much less noticeable. It seems to be all about the effects now.

Personally, I enjoy a game that forgoes super effects and works towards a good art style. I absolutely love to look at Team Fortress 2, for example.

As I already said, perhaps I am a bit unfair to the authors, but this just isn’t the kind of step up that, say, texture filtering was.