I thought they worked with ray tracing on the ps3,

http://www.youtube.com/watch?v=oLte5f34ya8

Next Gen after NextGen or Games streamed over Gaikai when PC is able to run it with no problems.

again with this "awesome" engine?!

This. Ray tracing is just way too much computation to run real time at this point. I remember writing a ray tracer in college, took my laptop about 30 seconds just to draw a couple spheres - no shadows, no refraction, no reflection, just a couple of damn spheres.

Probably not. Ray tracing is very demanding. But we can see implementations (already being studied) of partial ray tracing being applied on specific objects on the scene.

Basically, you apply rasterization on the scene and starts to apply ray tracing starting with the most important parts of the image. When the time to render the frame ends, you deliver the image with ray tracing in some objects and rasterization in the remaining ones. That's pretty possible. Now, talking about the gen after the next one, maybe we can see full ray tracing in real time (since it is the only way to achieve full photorealism).

Ray tracing should be possible with the AMD fusion series. Now speaking of PS4's APU, which is the most powerful ever released by AMD, it all depends on the APIs being produced. Nvidia GPUs are having APIs good enough to display ray tracing to some extent. The question is whether it'll be at 30 FPS on 720p or sub hd yet.

Sure the PS4 will be able to Ray Trace. Just way worse than it will do Rasterization.

720p 30 fps Ray traced God of War 2 should be no problem.

Enemy Territory Quake Wars was rendered  with four Tigerton quad-core CPUs (2.93 GHz) at 15 - 20 frame/s in 720p in 2008

The PS4 should be able to handle that at an acceptable frame rate. 

In 720p at 30 fps PS4 could Ray Trace alot of older games. Maybe we will see some experimenting with Ray Tracing this Gen. Also some things are simpler and cheaper with Ray Tracing , we might see limited use in some games later in the life cycle. I guess that Hybrid Engines for Raytracing certain things might come this or next gen. 

There are just things which are harder and costlier to achieve without Ray Tracing in the same quality. But broad use is still far away (10-20) years. 

The further Graphics progress the more we will need  Path-Ray Tracing and Voxels for the perfect graphics. It will come the time were its easier to simply Raytrace most of the stuff. 

well sony internal studios make take that leap

Never going to happen maybe the ps5 will do it