http://www.youtube.com/watch?v=mySER0p9F64

Watch this... Interesting the emphasis on physics. Also, as one comment is saying: good gameplay...

All this stuff came out already. A lot of simulation programs - i.e the fog, water, waves - aren't used in games because they'd probably make your computer catch on fire. When the hardware catches up, we can start seeing some of the stuff in that video in games.

Unfortunately that there is the key thing since you need a MONSTER of a system to achieve on the fly terrain modification.

I think what we will begin to see is a new system where people can customize a game to an extreme. Right now you have to go in and digitally alter photos to make them look prettier in a game making them into game textures. What we may see for a sort of "FUTURE" technology is a Dynamic AI Game Texture System that allows users to input their own photos of rock, grass, sand, etc... then the game will anolyze them putting them into the game. This being the same technology used to scan in faces then generate 3D realistic looking faces out of them.

I'm personally hoping for a return of Virtual Reality.

"Unfortunately that there is the key thing since you need a MONSTER of a system to achieve on the fly terrain modification"

Thus the title "FUTURE of gaming technology". I won't make incredible prediction by saying that what you call a monster will be the standard by 2015. We cannot import pictures in this forum but I would like to share this information with you about the evolution of IT.
A top notebook by 2010 had a speed of 10 gigaflops. It corresponds to the 500th most powerful computer in 1998 and the no1 most powerful in 1991. In average, the most powerful computer in the world is coming on our desk after 17 years. This is amazing. (From Dr. Hans Meuer, University of Mannheim, give to Caesar what belongs to him)
So forget about the power of the computer, just unleash your imagination. I dream about games using data mining algorithm for their AI, basically REAL AI games. Not (if,then,else) 'AI'.

If Activision doesn't destroy the industry then yeah this could possibly happen in the next 5 to 10 yrs.

meh I'd already seen 90% of that footage. There has been water simulations dating back to 2004 They forgot a few key things that will be in the future, such as ray tracing.

I think you need a mainframe computer to run these kind of on the fly rendering.