Well I will keep this simple:
The technology is still a limiting factor, it is getting close to being sufficient for graphics but it will be at least one more generation probably two before the big push to AI and physics as the primary forms of advancement.
As far as game development. Along with advanced technology comes advanced toolsets. To understand why new games with significantly larger complexities don't take significantly longer you can look at the amount of time it takes to make large island and populate it with trees animals , npcs, vehicles, etc... in the crysis editor. The point is that tools advance with technology and good tools keep games in the realm of feasibility.
We might hit a point where a AAA game engine could take a ridiculously long amount of time however.
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