Innovations in "next-gen" gaming (casual gaming & realism taken to their logical conclusion):

There will only be two companies left in the next-gen console wars, Sony and Nintendo. Microsoft will get out of the video game business when the few thousand Xbox 360 owners whose consoles don't break are shamed into selling their systems. The 360 owners won't be able to handle the endless ridicule and tauntings they experience in online gaming forums for owning a console that, although it may have the most games AND the most highly rated games, sells the least number of hardware units to middle-aged Japanese housewives.

Nintendo will build on the success of Wii Sports and Wii Fit by introducing improved versions. Wii Sports 2 will come with real tennis rackets, bowling balls, golf clubs, and baseball bats that can be used on all the real tennis courts, bowling alleys, golf courses and baseball fields throughout the world. Wii Fit 2 will sell yoga mats and other exercise equipment (weights, treadmills, stationary bikes, etc.). There will be Wii Fit-ness Centers in every town, where those who can't afford their own Wii Fit equipment can pay a monthly fee to go and play the game.

All of these products will be used by gamers in the real world, which Sony will re-label Home 2. The real world of Home 2 will be infinitely more realistic than the previous version of Home. Your avatar will not just look somewhat like you, it will BE you. Sony will open a real estate business, furniture stores, clothing stores, and hair salons, providing Home 2 users with thousands of customization options at reasonable prices.

Rock Band 2 users will form real rock bands with real musical instruments, and a small minority will even achieve fame and fortune (achievements, Microsoft's one contribution to next-gen gaming), which means at least some of them will actually get laid unlike those who play the original version of Rock Band.

A power glove that actually works. That'd make boxing games actually fun.

I dont think VR in its traditional visor concept will ever become a mainstream product, mainly because staring at an LCD an inch away from your eyes is incredibly bad for your eyes.

Another point would be, would you actually want to be immersed in a believable gaming exvironment such as resident evil or doom? you hear stories of people getting a little too involved with conventional games, if gaming became so realistic it actually challenged reality, we could be in a very bad situation. Manhunt VR? no thanks!

I cant actually think of a way to take gaming to the next step, even when Nintnedo announced they were using gyro technology nobody could have predicted the wii remote and nunchuck, the net was filled with images of traditional pads with half hearted motion/movement sensors *cough sixaxis*, all a million miles away from the master stroke nintendo were about to pull.

I do believe we could see another shift away from the traditional controller, but how this could be utilised exclusivly i have no idea, im sure some sort of motion tracking eye could be fitted on top of your tv to track your movement 10x more accuratly than the wii remote does, but we get the same issues of traditional games not working with that set up, even more than we do now with the wii itself.

Maybe we wont see anything new for another decade, theres no reason to expect another big shift in the next generation if you look back at history, maybe the remote/nunchuck will just evolve the same way the joystick/joypad has.

One thing im sure of, the next big change wont come from Sony or Microsoft.

 Microsoft will be making Xbox's as long as sony's consoles are entertainment systems.

Anyways, I don't expect much innovation for the next gen, just Nintendo trying to keep itself ahead of the game for a little while, as Sony and Microsoft try and "catch up". But the gen after next i would expect more innovation to be used in some sort of way. Depends on the tech used be then.

it'll be some sort of suit that can track your body movements and replicate it in the character of the game you are playing.

Tomb Raider will be fun.

Two cameras sitting on your TV to track your moves in 3D, with processors powerful enough to make it actually good tracking, unlike the original eyetoy. It would be able to convert your body into a 3d model and truly immerse you into the game. Your movements would be translated real time to the model's movements, and you wouldn't have to hold a silly remote control.

Game Visor? I've seen them in my local mall. I'm going to say no. It blocks your sight of anything else. People don't feel comfortable donning those and having no idea what is really going on. Now, solo hardcore gamers like the idea, but casuals and party gamers don't.

Okay, guys, can I point out a couple real problems with these VR and camera setups?

First off - VR heagear.
Whether you're talking big bulky helmet or sleek looking glasses, you've still got a basic problem: YOU CAN'T SEE REALITY.
This is great for if you're at a special arcade for it, but in your own home this is a BAD thing, just look at home many Wiimote injuries were reported when people COULD see what they were doing.
There's another problem that comes with this. NOBODY ELSE CAN SEE EITHER.
Seriously, great for single player games, but if anyone else wants to be able to join you for a multiplayer game, they've got to get their own glasses, not economical.

Next - tactile feedback gloves
This will never happen. Not on a consumer level. Medical fields are beginning to include this type of tech, but it also requires the doctors to go through training to utilize it properly. Even more of an issue is FIT.
What have you noticed about PS2 controllers and Gamecube controllers and Xbox controllers and every other input device ever built on a consumer level?
One size, fits all. Can you do that with gloves? No, and especially not when you need tactile feedback. A glove that would give tactile feedback has to fit snug to your hand. If it's too tight, you'll never get it on, and if it's too loose, you'll never get your hand in it.
Even if you built it to be rubbed and stretchy, it could still be too tight and cut off people's circulation, and the only way to keep it from doing that would be to make it flimsy enough that it would either be easily broken, or would stretch out of shape over time.

Finally - Cameras
This perhaps has the best potential for eventually becoming a viable input device, facial tracking and shape recognition has gotten to the point where it can almost recognize our movements and not just our outline. It still needs some work to get high enough processing time to provide consistent accurate input though.
There is still one problem with this and that lies in the line of sight nature of the camera. What if someone walks in front of you, or a pet walks in front of the camera? With current consoles, that might interrupt your game a little, but using a camera as an input device, it could wind up interpreting that as input as well, thus possibly sending you to a crash and burn scenario.
On top of this, what if you are in a smaller room, or are up to close for the camera to be able to get your whole body, or everything it needs for the input? Even the wiimote only needs to be about 2 feet away from the screen, less if you use a shorter length lightbar. A camera could wind up useless in this situation, only able to get your face when you need it to be able to read your whole body.

Think about this scenario. A game is designed to translate your actual moves in reality, into the game. What if in the game you need to swing your arm down and to the left, but in reality, there's desk in the way. You slam your arm into the desk, hurting yoruself in real life, and because the desk was in the way, it stopped your swing in the game and you ended up not being able to block the blow that killed your character. Would that be a fun control style, or frustrating? 

So basically, I've summed up the 3 requirements for any input method to be able to gain consumer appeal. A) Immersive control that still leaves you AWARE of reality. B) Allows for any bodyshape to play. C) Allows it to be played in any room.

Admitedly, some of these issues COULD be addressed, but we'll need a bunch of advancements before any of them become feasible, and a long time after that for it to push into the mass consumer appeal.

I'm calling it now: home motion capture. Basically a combination of the EyeToy and the Wii remote. The camera will be able to detect how and where you're holding a Wii remote-like device and translate it into a 3D environment. This would basically do everything the accelerometers and pointer in the Wii remote do, but much more accurately and in absolute space. In other words, it would give true 1:1 control.

Later versions of the technology will be able to recognize your movement without the help of the remote, so every move you make can be translated to your character.

Who will do it first? No idea. But I bet it'll be feasible by next generation.

@ Grey Acumen

I'm sure they could design a visor that could quickly flip upwards so you could see people, or when you press pause in the game, the visor flips up automatically/turns see-through. I mean, you can still HEAR all your friends, and if they are playing the game, you can see them in game also.

But I see what you mean about human interaction... The last thing we need is World of Warcraft 2 except you just sit in a corner with a helmet on your head, and never talk to anyone, LOL.