It's just all in the artwork. Take skinning in FPSes for example. The art style itself has hardly changed (note this is my opinion) from the the old days of 8 bit to now with full 32 bit source art. In the old 8 bit days it hard to make things look realistic with just a limited number of colours, so the art needed to be somewhat stylized. The problem is the art in new games is still generally stylized, except more colours are now used or the textures are bigger. It is in no way more realistic.
A nice example would be comparing Unreal 2 to Doom 3. I doubt anyone would say that either game is being written with a 'bad' engine, but which one looks more realistic? Unreal 2, or Doom 3.... well, just just have a look. Here's a screenshot from
Doom 3, and here's a recent one from
Unreal 2. It should be immediately obvious that Doom 3 just looks better, but is it the per-pixel lighting.... I don't think so. Per Pixel lighting isn't normally something that is so obvious in screenshots. It makes much more of a difference when you are actually moving around in the game. In a screenshot it's difficult to see if the shadowing is part of the source art or if it's being generated real time. Back to my comparison, the difference between Doom 3 and Unreal 2, is that the character from Unreal 2 looks almost like a hand drawn cartoon character, which of course she effectively is.
The reason for the difference is the way the skins were generated. The woman from Unreal 2 had her skin hand drawn. The skins in Doom3 were on the other hand rendered from the high polycount (untextured???) models. Unreal used the conventional method that's been used since Quake (if not before), while Doom 3 is using a completely different method that is rarely used in 3D games. The artists for Doom 3 are unable to make skins like they were before, so they look completely different to before, while the Unreal 2 artists are doing exactly what they were doing before.
One could argue that the Unreal 2 artists wanted the nonrealistic look, but then that is just the point. It's the artists who are not making realistic looking art, not the programmers, who many people tend to blame. It's not the 3d accelerators either. They do not enforce a limitation that states, you can not use photorealistic source art if you are not doing perpixel lighting. It's all just the artists.
While these observations are focused only on FPSes, they still apply somewhat to other game types as well. It doesn't matter how well a RPG engine can render the world if the artists are incapable of making a realistic looking character skin. Things will just not look real. Unless a change occurs here, which hopefully the Doom 3 engine will help to force, then we will still be complaining about how non realistic our games look in years to come.
-Colourless