Will graphics ever become detrimental to the industry?

[Fayceless]

I'm actually going to say No.

And we are already seeing the reason why: As graphics get more complex, more of the workload gets shifted to third party software. Pre-built, high quality engines that power today's games. Someday perhaps modeling and textures will, at least in part, be done by third party software or packages, if it's not already.

This is not a bad thing. Developers still focus on the quality of their game, the software just helps them achieve their desired quality more quickly. I've seen people complain about Bethesda's use of SpeedTree, but really -- how can a human possibly design a realistic, open world forest, given any amount of time? An algorithm not only does it more quickly, but more realistically. There are no downsides in this situation. Any specific situations the developers want something different, they can just edit it themselves quickly.

As more competition emerges, prices will be driven downward, resulting in lower development costs, and better games.

The real factor in rising game development costs is scale, not graphics. We've already seen games like L.A. Noire that try to do things on a massive scale, to their own detriment. The scale of it was a drag on gameplay, and drove costs through the roof - quite a bad combination for the developers.

On the flip side, games like Fire Emblem or Demon's Souls are more focused, but still look and feel massive. They give a truly great gaming experience (and look nice too) without trying to be bigger and fancier than everyone else, with a fraction of the consumer base of games like GTA or CoD.