I think it'll still be a real long time before we can't tell the difference between CG and real-time gameplay, primarily because of animation. The models and textures may have the same poly-counts and maps and all that jazz, but it'll require some seriously intense programming to animate real-time characters to match their CG counterparts. But yes, it will happen eventually.
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Can you imagine an FPS where you're shooting NPCs that look like real humans? I find that disturbing.
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That wouldn't be bad for games, really. Just a possibility of being bad for society.
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Also, once one developer/system boasts about having lifelike characters, all the others will have to match it. All creativity will immediately be sucked out of the industry; I personally think that most of the best characters out there are ones that either aren't human (eg Abe) or are extremely stylised humans (eg Raz).
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Just because everything will/may look realistic is by no means a surrender of creativity. I don't really know what you're getting at there. If anything, some of the competition will be sucked out of the industry, which is a good thing the way I see it.