Well you know what? Realism isn't needed. In fact, in my opinion, the importance we place on "realism" is one of the biggest hindrances in the genre right now on the way to crossing the threshold into art.
The Legend of Zelda: Wind Waker was released in December of 2002 in Japan. It featured a highly stylized cel-shaded artistic style. The game was extremely dividing among critics and fans alike, many people hating it and calling the graphics "kiddy" and "cartoony" while others, such as myself, found it to be a gorgeous way of bypassing the limited technology available at the time.
The bright colors and smooth animations were well done, and the ocean looked excellent being a beautiful shade of blue.
Now let me compare that to a game released the next year with a more "realistic" art style. Knights of the Old Republic.
This game, released by Bioware, while completely BRILLIANT and featuring writing on par or superior to the original Star Wars trilogy, was more limited by technology.
Now, I love KOTOR. I love Wind Waker. Both are fantastic games. But looking at the two of them, one of them looks superior. Because of the style of Wind Waker, years later it's still a very good looking game, whereas KOTOR, while one of my all-time favorite games, hasn't held up nearly as well, even though it's a year younger.
The reason for this is a principle called "The Uncanny Valley".
The uncanny valley is a term that originated in robotics, and has since been applied to CGI images, be it movies, or video games. The idea is that there's a certain point where something looks real enough that it looks human, but because we know how humans are supposed to look instinctively from seeing them so much, we can tell it's not real. The result is something unsettling. The deeper into the uncanny valley you go, the more unsettling it is, until finally it's broken, and you can no longer tell it's not real. That's something that hasn't happened yet, I might add. Technology is getting close with movies like Avatar, and games like Heavy Rain, but it's not quite there yet. Some people actually theorize that the uncanny valley can NEVER be broken because of how the human mind perceives things. I personally think that uncanny valley will be broken within the next five to ten years, but it's very difficult to say for sure.
Which brings me to the way to avoid this. Stylization. If something, like Wind Waker, looks stylized enough that we automatically know it's not human, and isn't supposed to look human, we subconsciously get over the fact that it's trying to trick us, and can accept what the characters look like more easily.
Tl;dr, stylized things look better because they aren't supposed to look real, and realism is trying to. A failing.
Let me take two big name First Person Shooters, both of which I've mentioned before. Team Fortress 2, and Modern Warfare 2.
Modern Warfare 2, released last year, and sold well. In fact, if you're a mammal living in North America as of right now, you statistically own 2.3 copies of the game. The game features extremely realistic and brutal combat set in Iraq, among other places. Bobby Kotick made a billion dollars.
You know that swimming pool filled with money Scrooge McDuck has? Yeah, Bobby Kotick put one into his house last January.
But I digress.
The point, is that this game featured more "realistic" gameplay. It has real guns as weapons, and you're fighting the real people we're fighting in a war right now. It's very gritty, bloody, and serious.
Team Fortress 2, on the other hand, made by Valve, is one of my all time favorite games, and the only FPS I actually play. It's zany. Let me list some of the weapons this game has.
An automated turret gun.
A jar of pee.
A sniper rifle that shoots rockets.
A sword that can decapitate people, earning you more health.
A magic wrench that turns people to gold.
A gun that heals people.
A baseball bat. And a baseball.
A can of soda.
In other words, it's anything but realistic. It features a graphical style that looks like old WWII propaganda posters, the game has a wicked sense of humor and doesn't take itself too seriously. The "story" of the game is only very loosely there, and in fact has only really been revealed via the hysterical TF2 Blog. Here goes.
Zephaniah Mann had two suns, Redmond and Blutarch who fought over everything. When he died, he left his company, Mann Co. to Barnabas Hale, a good friend, and told his sons to work out the land he owned between themselves. They ended up just hiring mercanaries to fight over the things though. After a hundred or so years of that though, they were both almost dead, so they hired a guy to build them both "Not Dyin' Machines" which would keep them alive until they could get the property they both felt they rightfully deserved.
We play the mercenaries. If you are red, you kill blus. If you are blu, you kill reds. You want to gain territory/company intelligence, depending on the game.
But the really great aspect, are the characters, who they've introduced through their "Meet the Class" series of videos.
*Warning some violence and blood in video. Highly stylized and exaggerated though.*
The game is anything but realistic, but it is incredibly fun.
The point is, realism does not equal good.
Now don't get me wrong, I'm not against realism in games. But it's certainly not needed. There is a lot to be done before "realism" is perfected. And once it is... What's the point? I don't understand why realism should be so important. You know what's realistic? Real life. When I play games, I don't want realism all the time. Sometimes I just want to have fun.