Maybe I'm just more willing to suspend my disbelief, but not once during Fallout 3 -- nor any other game I have ever played -- did I worry about the plausibility of the world. Present me with a town full of people and I start looking for quests or interesting characters, not wondering how a shop and a restaurant are supposed to provide employment opportunities for an entire town alone. Just give me the edited highlights of your world, I'll fill in the gaps.
This is something that's going to vary widely from person-to-person. First of all, in my mind there's a big difference between something being realistic and something being believable in a fictional setting. Realism isn't necessary in a fictional setting provided the setting is sufficiently believable within its own fictional context. The intended application of the setting is also relevant to me. In your example, I don't expect the setting of Mario 64 to be all that believable, much less realistic, because the themes integral to that setting and the gameplay don't require it. It's not the type of game in which I feel a need to be immersed in its setting.
So, I don't really care, for example, that magic isn't realistic. Within the context of, say, a TES game I'll accept the fact that a person can shoot lightning out of their fingers all day long. It doesn't break my immersion because I've already accepted magic as part of that fictional setting. If you take that a step further and explain to me, within the context of the fictional setting, why magic exists, how it works, what kinds of rules it's governed by, and how a person might come to learn how to shoot lightning bolts from their fingers it becomes even more believable to me...again...within the context of the fictional setting.
In a role-playing game a significant chunk of my enjoyment comes from feeling immersed in its setting. One of the major themes of the Fallout series is survival. As such, when a settlement is trying to eek out an existence in the harsh post-apoc wasteland it's nice if it's evident by looking around and talking to NPCs. Fallout 3 did this. People did live in makeshift huts and destroyed buildings, ate odd foods, talked about surviving, etc. Outside of that, though, there wasn't any evidence of them trying to survive. They didn't farm, they didn't trade, they didn't scavenge, etc. These are all things that would have added additional dimensions to the theme. Additional dimensions and justifications solidify a theme within the setting...make it more believable...and therefore add to my immersion in the setting. I'm not saying that a game that doesn't do this is bad so much as that a game that does do this is doing a better job of making me believe in its setting.
Apply the same concept to conflict, which is another recurring theme in the Fallout series. The factions in FO3 rarely interact or even talk about one another. There were subtle and not-so-subtle clues that these conflicts were occurring, but the opportunity to add additional dimensions to this theme were ignored or missed by not showing more evidence of it in the world, giving more back-story, allowing the conflict(s) to evolve and have an effect on things, etc.
I could keep going on themes like politics, technology, faction storytelling, etc. Again, I'm not saying that a game that doesn't pay attention to these things is bad...just that a game that does is doing a better job of making me believe in its setting. My opinion, of course. There's no right or wrong.