In ways I wouldn't be surprised if the hardware was capable of graphics at a detail level where most people didn’t care about the difference between these games and Avatar, after all the next XBox will probably be released in Q4 2013, possibly with a GPU that is 2 years newer than the top of the line GPU we use today.
Of course the challenges of producing graphics like this in game are not limited to hardware processing power. The cost of developing games has increased by 2 to 4 times with every generational leap in graphics since the NES, and this has resulted in countless bankruptcies and mergers reducing the number of developers, and a risk adverse industry where most games are clones or sequels of games that are popular. If this trend continues in order to produce "Avatar like" graphics in game then I would expect even million selling games to banrkupt their companies, or developers to opt out of the graphical arms race and continue developing games at a similar detail level to current HD games.
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