http://www.youtube.com/watch?v=wFWXClkf2-c

We already had photo realistic video games. It didn't end well.

ROFL!  I really thought you were gonna link to Night Trap or Corpse Killer, but Sewer Shark is in a class all of its own.

First mission of the game:  Deliver 1,000,000 pounds of "tube steak".

Yeah, first mission and you're delivering 500 tons of dicks lmao!

We'll get to the next level of gaming once we get direct brain to computer interfaces working. There is some progress but it's still slow and imprecise.

An investigational implanted system being developed to translate brain signals toward control of assistive devices has allowed a woman with paralysis to accurately control a computer cursor at 2.7 years after implantation
http://news.brown.edu/pressreleases/2011/03/braingate

I don't think the average person wants brain surgery to play a game, luckily it also exists in headset form, already available for pc.

Far from useful yet and it requires a lot of training in the users part to get any consistent results.
"Playing a slow motion game of Pong that's harder and more frustrating than Ninja Gaiden on its toughest setting is not a happy experience. Especially when, for the briefest of flashes, you see that an errant thought can send the white line moving up and down at a good speed."
http://www.joystiq.com/2010/01/27/review-emotiv-epoc-tough-thoughts-on-the-new-mind-reading-cont/

These systems won't be complete until we get haptic neural feedback working. The part where motion control fails is where you don't get any feedback and simply swing through things destroying the 1:1 link to the on-screen action. There is some research in the medical prosthetics field but it's very limited. It will be a while before we can plug into the matrix.

Advances in visual interfaces will help immersion too. Rotating your head will never really work until you have a head mounted display. (Or displays all around you but that seems less likely) Virtual retinal displays or retina scan displays look like the way forward.

Due out this summer in Japan
http://www.engadget.com/2012/04/17/brother-airscouter-glasses-bring-augmented-reality-unsightly-ad/

Ofcourse before we can simply think our thoughts into rpg's, we'll get reliable voice recognition and advances in AI.
Being able to reason with characters on screen will be the next revolution in gaming.

Gaming is still in it's infancy. For a long time we've been stuck in a loop of experimenting with motion controls <-> back to better graphics with traditional controls. Maybe after next-gen gaming will start to look into new ways of controlling games.

In that case, real gaming began with the PS3

I don't know about that. It's one thing to render photorealistic video game scenes and we will definitely be able to do so in the near future. But merely being able to render such games won't be enough to really make them lifelike. Real life is extremely detailed. Games will require an insane amount of details, which means you'll have to make an even more insane amount of unique objects and textures. Making games lifelike will put extreme limitations on what you can do and especially what you can afford to do since these games will cost a fortune to make.

Edit:

Photorealism might end up as a milestone of gaming, but it's probably gonna be a dead-end rather than a checkpoint.

Nah, it began with the Sega CD, CD-I, 3DO, and PC CD-ROM....

Psshhhh... wait, I thought the entire universe began with the PS3?  I mean it only does EVERYTHING, right?!?