I remember clearly when graphical detail started becoming too much for me - the original Witcher in 2007/2008 - I was running around city and thinking the details were nice but they were waste of resources since their only function was decoration with invisible walls everywhere. The second game was Mafia 2 (2010) which also was a huge disappointment as a game for me - but first stage that was set in WW2 the game required me to move fast through very detailed rooms and I was thinking damn, they put so much work in to this just for me to rush through without chance to actually appreciate the details.

I had problems adapting to modern games around that time because there was so much detail it was distracting me. I still hate when there is too much trash on every square meter in some triple A games like the modern Deus Ex games but that is the least reason why I dislike those games. That's why I love PS2 era games because they look good but at the same time have only so much detail that I can fully concentrate on gameplay.

I think it was Lost Planet, it was first game I felt like I need a new console, with all the crisp whites (I am more blown away by snow, than I am darkness, that is gears of war). I never truthfully got that feeling again, I do see 4k TVs, and that sense is back, but no game can do that yet.

Actually this trailer did get me a bit, but it was trailer only:

The framing of this question screams bias. It hasnt had dimishing returns for me, until graphics are photorealistic I wont be satisfied. 

Hmmmm. My idea of diminishing returns isn't really what you describe in OP... I view it as more not being able to notice the graphical difference as much, so jump from ps3 to ps4 not as big as from ps1 to ps2, rather than "there's too much detail and I don't stay around enough to appreciate it."

But I'll say it's not really affected me yet, I still think new games look fantastic compared to games from a few years ago, and putting detail into every incidental area that the player may not even view or may only see for mere seconds IS fantastic. I don't want to go round a corner they don't expect anyone to go and be greeted by a bare empty grey room. Great detail in every area of the world is good design.

The common meaning for diminishing return is what you say.

For me it's Crysis 1 on PC, with this game we really reached highly detailed textures (not just for the resolution, but this feeling that every square is unique), detailed vegetation, realistic look, depth of field, etc. I mean IMO, 8 years later, even if you spend millions on a AAA game production, you can't really show something that shames it. Until this game, every single new 3D engine was still a revolution, from Doom to Quake 3 in 6 years, from quake 3 to Crysis in just about 8 years.

This agreed 100%.

It really hit me within the past 3 or 4 years but mostly because I started paying attention to stuff like sales data and budget sizes. I was noticing all of these huge AAA games that were "flopping" of barely breaking even simply because people were asking these games to have super detailed realistic graphics but then I was noticing how companies like Nintendo and atlus were still making good and visually appealing games but weren't dropping $50million+ on high end engines and photo realistic textures

We're not at the point of diminishing returns yet, and I'm not sure we're at the point where I'm fully satisifed yet either. I'd say when the environments look rich and manage to look good even at a higher resolution is when the graphics are 'good enough' for me. Regarding realistic-looking games, some were probably there at the end of the 7th gen, and a lot are starting to be there now (or this gen in general). But some games still aren't even nearly there. As for artistic games, stylistically they're already there. It's about how well they cope with increasing the resolution. 7th gen games generally hold up pretty well because they were already designed for a high resolution, but games older than that have a harder time. In general, I'd say that anything before the 7th gen is unsatisfactory, and even the majority of the 7th gen is.

That's not to say I don't like the graphics before the 7th gen though. There's a lot that could be done to make them better, but they're fine as they are. It's mostly that when you increase the resolution, everything starts to look so empty. That's why I don't always like increasing the resolution too much. That's also why I'm talking so much about resolution. When you increase the resolution, it reveals the lack of details a lot of older games have. And by details, I mostly mean objects etc. in levels. For some reason, the emptiness is much harder to notice with a lower resolution.

There have been some games recently (on console) that gave me a wow factor: Ryse, The Order 1886. I want them to keep pushing graphics and gameplay. I don't see a point in settling for either or.

Hard to say.

On one hand I remember early 3D games (Saturn, PS1, N64) all feeling like a big step backward from the SNES. Going from Super Mario World to Mario 64 or from Street Fighter II to Tekken didn't just feel like diminishing returns, it felt like backsliding.

Since then been impressed as 3D polygons have made huge strides from PS1-PS2-PS3-PS4 jumps.

Now, part of what you seem to be touching on is trade off for graphical fidelity and the big one as a JRPG fan is the loss of fully rendered worlds with towns and over world maps. On SNES for example just expected a town of people to talk to and then leave to over world and walk to next town. Now, often teleport to towns via a menu and towns are often just menus as well. I get how much harder it is to model everything, but part of me misses that sense of world building walking around everywhere brought me.