I think graphically, things are no longer progressing, at least not in the sort of revolutionary way of past generations. They'll continue to increase but their importance will be reduced by deminishing returns.

Technology knows no bounds!! It will go in new ways, and I think next generation will be more focused on immersion than mere graphics. It's too early to say what, and who could have predicted the motion sensing of the Wii? But maybe 3d halographics images, enhanced motion sensing, thought control, who knows.

 Yes, they can do more. I never denied that, the worlds are more expansive, large, detailed, crisp, more going on, but the point is that's not that impressive, they did the same thing last time. It's just a slight evolution, rather than actually trying to do something new and important, they opt to do the same thing over again but slightly better.

The PS2 in two years definately put out things that were far more impressive than late PS1 N64 gen stuff, and the fact that the gamecube and Xbox hadn't been released is really irrellevant. 

This generation may be young, but it's already run its course graphically.  We already have Crysis above even the possibility of being run on any home console and Mass Effect pushing the hardware past what it can really do.  I don't think you should be expecting much if any graphical improvement in the future.  

As far as AI leaps, what games are you talking about?  Because a few big next gen games come to mind for me:  CoD4, Assassin's Creed, and Heavenly Sword.  None of those have AI better than last gen.  Some of them arguably much worse.  I know theoretically AI should be better this generation, but it simply isn't.  Not yet. 

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.

 im sorry but spending 3,000 dollars on something that is for gaming is very smart. unless you are the kind of person that lives in the basment of your parents house with no life and no woman working at mcdonald's. (see too many people like that)

technology as in the wii's case isnt measured in graphics or movie watching. it is in gameplay and the games that everyone can play. tech has hit a wall to the point where only the hardcore gamers that loves fantastic looking games would much rather spend 500 on a pc then 500 on the ps3. i can have a custom pc built for 750 that can have graphics better then ps3, i can watch movies, surf the net, play online games, listen to music and all that for really really low prices compared to spending more and more money on expensive controllers, memory cards, and omg 30 dollar blue ray movies. next gen if they keep advancing in tech like they have this gen then games themselves will be at minumum 80 bucks a game for those machines compared to 50. so yeah that is why the wii is selling so well is cause price and fantastic games that everyone can pick up and play.

That's something Microsoft probably secretly wants.

If the entry cost of console gaming comes too close to the entry cost of computer gaming, all of a sudden a new computer starts looking really attractive.

 Did those kill the story?  I guess I am just not following you when you say a texture would kill the story, yet it still has technical faults.  But more over, I have seen screenshots with textures that make me cringe.  I don't think misplaced textures would ruined the experience for me though, but I guess people have different standards in that regard.

It is rather odd to me that so many people have such a high opinion of this game and whenever I look at its videos, screenshots, reviews, etc... I try to get into it but just can't.  Its just strange how completely different we are looking at this.  It has nothing to do with it being a 360 game as I am still expecting it to come to PC down the road.  Actually my PC is probably the reason I don't have plans to buy a 360.

The entire dialogue & conversation system would suffer greatly if Mass Effect wasn't able to bump those great textures, use depth-of-field, etc. One thing people are forgetting is that these graphical achievements allow companies to stop using the bloody cutscene. The graphical engines are allowing gorgeous movie-like interactive situations instead of sitting there watching a cutscene.

Simply put, nothing like Mass Effect was possible last generation. The entire structure of the game's storytelling system would have needed changing because old hardware wasn't capable of the interactive cinema-esque shots put together by BioWare.

PS. Videos and cutscenes don't do Mass Effect justice. Not at all. The game does a fantastic job of immersing you into the story and giving you a really epic feeling. 

>>With likes of the ps3 and 360, making games is taking alot more people, time and money. It seems to me we are not far off where the hardware is no longer limiting games its the human factor of having hundreds of people sitting down for years writing code.