Epic founder Tim Sweeney muses that we may only be 10-15 years away from the technology needed to produce photo realism in gaming, by virtue of technological evolution as described by Moore's Law alone. Sweeney remains a key player at Epic, playing a part in the development of the Unreal Engine used in titles like Epic's own Gears of War series. In an interview with Gamasutra, Sweeney believes that while sheer "brute force computing power" can make graphical realism a very real possibility during this lifetime, though there is nevertheless a glaring issue that will likely hinder development.  As you may have guessed, that's emulating human behavior:

We're only about a factor of a thousand off from achieving all that in real-time without sacrifices. So we'll certainly see that happen in our lifetimes; it's just a result of Moore's Law. Probably 10-15 years for that stuff, which isn't far at all. Which is scary -- we'll be able to saturate our visual systems with realistic graphics at that point.

But there's another problem in graphics that's not as easily solvable. It's anything that requires simulating human intelligence or behavior: animation, character movement, interaction with characters, and conversations with characters. They're really cheesy in games now.

Even with unlimited computing horsepower, it's not easy to simulate the way the human mind works. Unlike integrated circuits, there's no Moore's Law to trend the evolution of the way we think. The ability to create photo realistic graphics is also only the start with any given game engine. Sweeney envisions "decades and decades of work" to further improve the tools and functionality needed to produce perfectly realistic graphics.