Playing Bioshock on ps3 right now and it offers frame rate unlock. Lowers visual quality for smoother gameplay. I guess more games could do that and offer options. If not many just a few. 

I agree on AI and Physics

But one of the main areas they need to tackle is character writing and player agency. The end-cycle of this genre the companies are finally competing on these things instead of who has bigger explosions and better shadows and water effects.

Wow, never knew Bioshock had that... that's cool. Yes more of that please :)

1. They do need to be much more powerful if you want 1080p60.
Last gen went from 480p60 to 720p30. Going to 1080p60 is a bigger step.

2. Halo 4 has about zero interactivity with the terrain and mostly small groups of enemies to fight at a time. All the big exciting stuff happens in the backdrops. Not a good example of being good enough.

3. If today's game budgets can produce the 1080p and even 2160p pc graphics that are good enough for next gen, then why the need for bigger budgets.

4. On the flip side of cheaper consoles with bundled gimmicks is a shorter lifespan. The Wii has pretty much been abandoned for over a year already. Consoles that only last 5 years are going to be even more disruptive then a higher initial cost.

Resolutions were all over the place last gen.  A lot of games were 480i@30, with no widescreen support. Some were 480p@30 and the cream of the crop was 480p@60 (GT4, Ninja Gaiden) .There was a even few games which actually ran 720p on the Xbox 1 (Mortal Kombat Armageddon for example). 

The change in visual fidelity this gen came from HD resolution obviously, but also due to textures, polygon models and all that stuff Slimebeast talked about on the last page, which had to be brought in to the HD world. Current gen consoles can keep up with a lot of these technological advances in lighting and rendering, they just can't in resolution and frame rate. Look at The Witcher 2 on the 360 VS PC. Polygon models don't look any worse, most of the textures are comparable or slightly lower quality...all it's missing is that its running at a lower resolution, lower frame rate and some of the very cutting edge GPU enabled tech like tessellation.

Im not saying that all games will be 1080p@60 fps...far from it. Just that they really don't have to worry about anything higher than that when they are making the hardware.

I don't think it will be too taxing to run a lot of next gen games at that resolution. Something like Dirt Showdown runs 1080p@60 fps on high using a puny A8 APU and a 6670 GPU all which are failry low end. This is with Windows running in the background...

http://www.youtube.com/watch?feature=player_detailpage&v=LxlQLzOCxEc#t=564s

While I don't have any benchmarks, I wouldn't be surprised if WiiU is more powered as the APU/GPU above they are using for benching these games.

Also, I don't think you played Halo 4 as it has way more enemies fighting you and each other than the likes of Call of Duty or battlefield 3 with much more elements at play. The AI is also much better than those games. Only thing it lacks is interactive backgrounds and destructability...

Stories and whatnot in video games are completely laughable compared to other entertainment mediums, I'm totally with you on that. I was just speaking from a technological advancement perspective.

Polygon models are good enough agreed. The environments and especially the textures need a boost though to go to 1080p. Textures are very much on the low res side for 720p on consoles, but that's mainly a memory problem.
Techniques are pretty good nowadays yet most of the effects run at half or even quarter resolution and/or lower update speeds. Everything needs to be scaled up to go to 1080p60. As well as the draw distance which is the most taxing.

I just finished Halo 4's campaign last night. I don't know about Call of duty but I didn't see any Kameo, Dead rising or Dynasty warriors type crowds. The graphics and AI are a lot better in Halo 4, but the amount of action on screen did not really impress. (Could be because of my play style, mostly long distance with the light rifle not to activate the next group too early)

I don't think we'll see many 1080p60 games either next gen. 720p60, 1080p30. That's fine, hopefully we'll get intelligent crowd AI, more interaction and worlds that change instead of shiny screenshots. I doubt it though. This gen most devs only used the extra processing power in the spu's to help out the gpu :/ Anyway the bigger the leap in power, the more headroom for innovation in gameplay.

I could care less about the graphic capabilities of the games I just want great game play and smart AI.

I suspect the next generation will offer 1080P @ 30FPS (with low latency) or 720 @ 30FPS per eye 3D. I really don't see a point in going for 60FPS when TVs are already adding so much latency already. I could be wrong however as they have every opportunity to include very fast basic memory like DDR4 with a wide bus and then move to 3D stacking as well as enough embedded memory to easily contain 1-2 1080P framebuffers, 64MB is the rumoured quantity for the Xbox next which ought to do it just fine.

Could't care about graphics. Just want 4 player splitscreen at 1080 p 60 fps.