like others have said, Killzone 2 and Halo Reach had great AI and Killzone 3 is pretty good too, but just like other people, its about difficulty level, on Normal, I don't want the AI to be so insanely tough that it makes the game unplayable, but on Insane, I think its warrented

Let's put it this way: which is bigger improvement, enemies flanking you or enemies cooking grenades? The point is still that cooking grenades is a very small improvement and you certainly can't say the AI is smart just because it can cook grenades. There's a whole lot more to it, many much more important things that cooking grenades.

Killzone 3, those Helghast are quite smart they jump obstacles, launch grenades, roll, take cover.

AI has become more complex, but not neccesarily smarter.

In a game like Oblivion a lot of characters would have their daily routines. They would abandon it when in fear of their lives and later return to it.

In Tropico 3 every citizen on the island has its own 'sims' needs. You want to build a building but your workers are too busy getting their needs satisfied. Sleeping, eating, entertainment, religion and such. You don't notice it as much until you start following them around.

Path finding has had to keep up with the increasingly complex geometry of levels. Which still fails now and then with characters getting stuck.

Apart from the pathfinding it still is mainly simple rule based AI. You can program the rules yourself in Dragon age or FF12. The game AI is not much more complex then that. There are group tactics but those are all rule based as well, whether its an rts or fps. There is no intelligent problem solving. There's also no need for that from the AI in current games. Characters are always responding to you or following a set routine.

The rules can still be improved a lot, there is no excuse for oncomming traffic in TDU2 to turn left into your or other AI cars, yet they know how to dodge when you're in the oncomming lane. Need for speed hot pursuit does it a lot better, the 1 on 1 catch the car races almost feel like you're trying to catch a human opponent with well timed use of power ups and turning around trying to confuse you.

You don't want the AI too smart either. Otherwise the enemies in Crysis 2 would all pick a good spot to snipe a doorway together, or hide behind the door with a shotgun while his buddies throw a grenade inside. You don't want the same KD ratio in single player as in online, or would you?

A big advancement will be when characters can understand you instead of picking out pre-scripted responses in adventure games and rpgs. One of the last games that tried this was Starship Titanic, where you type in questions in natural language and the game would give a sensible response fairly often. After that typing went out of fashion, so now we're still waiting for speech recognition to work reliably first. Then game developers can continue with natural language processing, natural language responses and speech synthesizers and hopefully we'll be able to have an intelligent conversation with characters in the next generation or two.

Another big advancement would be the game recognizing your emotional state and adjusting the game according to what your preferences. Recognizing whether you are bored or frustrated, want to relax or sit on the edge of your seat and be able to adjust the action on screen accordingly would be a lot better then the 1 size fits all we are used to now. (apart from the few difficulty levels)

Adjusting the narrative based on the player's action would be great as well. A city like GTA4 or area like Oblivion are great places to experiment with dynamically generated stories. They probably won't be as interesting at first as pre-cooked stories, but they should make more sense then certain twists and turns do in DA2 trying to get the different paths on the same track again.

Anyway I have high hopes for when speech recognition becomes reliable at relatively low processing costs.

Killzone 3 has great AI I think,and it has bot play on the multiplayer maps, no internet needed, so they had to make the Ai  reasonably well for that to work. Crysis2 on the other hand, seems very simplistic. poke your head around a corner, EVERY bad guy starts shooting at you INSTANTLY! That might make sense for the aliens actually, maybe they can instantly comunitcate your location to each other, but the human bad guys? It would take a few seconds for someone to say over the com, "he's on the library, top floor, right side", and a few more seconds for them to look, aim and fire. I allways wonder why developers don't cover their bad AI by integrating it into the story, they could have told you at some point that the aliens can communicate instantly. 

ofcourse flanking. but a small improvement is better then nothing. games dont need brilliant ai, unless they become to easy. yes they enhance the experience, but if the ai is average it wont remove from it.

This is actually a very good point. 

Do you know why camping is so prevalent and annoying in online games?  Because its a really effective strategy. 

If programmers wanted the ai to act like players they would just have them all hide in dark corners of rooms and aim their guns at the door.  That would get annoying fast, but it would definitely be a much smarter strategy on the ai's part.  Can you imagine a game like that?

simply put, realistc ai wouldn't work in campaigns. If the ai are too good, the game would be impossible to beat unless you are far more powerful than them. If a game had competant ai and your character doesn't have some extreme advantage over them in terms of weapons, armor, or something else, the game would be unbeatable if you have to fight more than 4 of them at a time.

well when the Ai is too smart you get metro. Where as soon as you pop your head out. BANG.

I agree with enrageorange. There has to be a balance of dumb though.
Like walking in to barriers and fasing the wrong direction, or just spinning for no reason is unnacceptable.

Most people probably don't have reflexes better than everyone else. Because that would create a paradox. I think D:

There was a big jump in F.E.A.R. the original one. I clearly remember hiding behind a table and shooting at a whole bunch of guys when all of the sudden I got shot in the back by one of them. The room I was in had 2 ways to get to, turns out the guy had gone all the way around just so he could kill me.

I really wish they would make better AI, because even the current one is too dumb. I would love to have smart brilliant AI where I can't approach everything the same way, and where I get killed by something other than the fact that the enemies just have harder hitting weapons or superior numbers or more armor. I would love to have a game where the AI is nearly as smart as a human, or better.