Instead of just sitting/standing in front of a TV, computer or playing a handheld, will games be able to be played while you're dreaming, or in our thought processes? 

I know, I'm really dreaming now right?  Would anything like this be possible in the future?  Maybe.  Who knows?

What do you think will be the next step up?  Holographic images seem like the next thing, but what about after that?  and after that? etc. etc.

There are already machines that can turn thoughts into action. I can't remember if they were moving a physical device or simply a computer action but it should not be hard to do the one if you can do the other. Technology is advancing at a far faster rate than most realize.

Holographic images would be epic.

yes..controlling a holograph with the Wiimote and Nunchuck..and balance board?

damn..that sounds freaking sweat...having my smash characters fight on my desk ^_^

If you wanna play games in your head, just take some LSD*






*colonelstubbs does not condone the use of mind altering substances and advises you to almost certainly not use LSD

wear a helmet of some sort, then you get to be a video game character (first person maybe?) and do what they do!

That's pretty much not suprising since Japan have come a long way in terms of technology advancements