You cant go more lifelike than 100% lifelike so I dont see how it can keep improving forever. I believe games will advance mostly in AI and stuf rather than on graphics on the next few gens.

Before definitive photorealism is allowed through brute force of computing power available, we could meet a temporary wall first, when all the possible tricks and techniques to speed up calculations for the possible FX and features will be so many to be difficult to be all implemented in acceptable time in a commercial (or academic too) project with a deadline, then devs will have to rely on a few 3D engines updated to use as many new and better techniques as possible, but they'll have less possibilities than now to make their own engine, that will become more and more a specialised job.
Just to make an example, graphics quality progress made implementing functional mirrors more complicated 
http://www.giantbomb.com/functional-mirrors/3015-4618/
https://en.wikipedia.org/wiki/Transformation_matrix
And about AI, but also and even more for more realistic implementation of virtual objects, we'll need a lot more computing power, not just to handle the higher detail itself, but also to keep everything under control and prevent projects from becoming as mess, as detailed functional worlds will require strict use of object-oriented programming to keep projects manageable as game worlds grow and become more detailed through development, and with less and less possibility to take shortcuts with classic, nimbler procedural programming, this will require more power.

Not sure if it'll be 25 years or not, but it's quite possible, seeing how far they've come in the past 25..

Agree, we are already in the dimished returned stage, but they continue to refine and improve.  It's like Sound kept improving till 5.1.  Now we have 7.2, but it's not a leap better than 5.1 - just a step. 

Now, it's going to bigger higher res TV and multiple monitors.  4K is the new standard for TV's and it's nicer than 1080p, but doesn't feel as the leap from SD to HD.  Also, we are going to VR/AR type goggles. 

While it's deminishing returns, it's still nice improvments, and the next 25 should be amazing!

Absolutely agreed, I saw the OP in context of the common "graphics can't possibly keep on getting better" discussions. Of course there will be minor hitches and speeed bumps but computing keeps on moving forward.

As for AI; I experienced something ridiculous last nigth while playing FIFA. I needed to lose the match (so as not to overshoot the season goals too much, it makes the board unreasonable next season) but couldn't while simming it, so I started it and would usually just forfeit but this also upsets the board. So I started the match and simply didn't do anything, the only buttons I pressed was to shoot the ball out from the goal and free kicks if I got them (and I did). I played on Professional difficulty, how many goals did the opposition score in the first half (around 4.5 minutes total)? Zero, that's how many. How yellow cards did they get? Two, the same player both times and he was sent off with a red. Twice I was standing with the ball in my own box doing nothing and the AI never managed to grab it and score a goal. I ended up having to score own goals in order to lose in the second half (oh, and I filmed the whole thing...).

AI galore!

Jeez, if big publishers weren't what they are or have become one could reasonably expect them to at least finely tweak AI and other stuff in games that are basically the same game slightly modified every year to overmilk the franchise...