With all the talk going around, and the Kojima thread, I figured I would take time to state my view on what "realistic graphics" is.
My take is that they theme of a game doesnt have to be realistic or that a game even needs to have a real-world color pallet. I believe that games will have more definition to the characters. Each character will have its own weight, abilities, motion, and feel. The game could be as simple as an anime or as drawn as Okami but textures will be well placed and high-quality.
Kojima talked about how how the backgrounds of the next generation will be alive. I believe this is a good way to think. If you shoot a grenade into the distance,it shouldnt just blow up on an invisible wall, it should continue flying and maybe hit a tree and blow it up and start a fire. With that fire something comes along, mattering the game, and puts it out in real-time. Resistance 2 with the battleships is a great start since they are far in the distance but they slowly fly across the screen.
Realism doesnt have to mean real. Take a Final Fantasy game, there is no way a summon would be real but could anyone imagine Crysis level graphics attached to FFXIII. It would be basically be equal to a CG movie. As long as a game feels real then its a realistic game.