I agree with the comments concerning immersion, but I'd still argue that not enough is being done to take advantage of the internal--i.e., the player's imagination. We've often discussed how "fluff" and "superficial" things that don't "directly impact" gameplay can have such a huge effect. For instance, the ability to highly customize your characters, find weapons or armor with unique descriptions and back stories--OR, just a highly compelling story and characters in the first place--can make a game far more immersive. Take an old game like Phantasie (for Bill) or Pool of Radiance (for me). Those games are far, far from photorealistic, but they take full advantage of the player's imagination to flesh out the rest and even go beyond what is possible today relying purely on technology.

In other words, before we go talking about fans and 11.1 stereo or whatever "the next generation" may be, I'd argue that we need to focus more on really improving what we have. I don't think the current tech has been pushed even 50% of where it could go if we had more truly visionary projects in the works.