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The Games Industry's 2007 Resolutions
Gamasutra has a piece up from earlier this week, with some late New Year's resolutions for the games industry. Their frequently-done 'Question of the Week' series pulled in comments from game developers and designers working right now, with their hopes for the best in 2007. From the article: "Now that 2006 is over can we finally stop worrying about who's going to win the console war and start focusing on the games? Arguing about which next-gen system is the best is as silly as arguing about which five-star restaurant has the finest china and silverware. It's the food on the plate that matters to the customers after all. With any luck we'll see delicious games with plenty of innovation on all of the platforms this year! - Patrick Curry, Midway Games"
Nintendo has pushed better graphics in the past, and I don't disagree that better graphics would be nice, but I think you over estimate the benefits of "Next-Generation Hardware".
Physics: Sometime between the N64 and Dreamcast processors became powerful enough to handle Newtonian Physics; by the time the Gamecube and XBox were released we had enough processing power to handle most of the game impacting physics simulations we use today. The XBox 360 and PS3 offer a lot more processing power to handle physics but (for the most part) it makes a cool tech demo of 1024 rubber duckies in a bath tub but offers very little added benefit in terms of gameplay.
AI: This may shock you, but you will see little in the way of an improvement in intelligent AI from the increase in processing power; the fact is 99% of "intelligent AI" are scripted events which are far more limited by the quality of the person handling the scripting than by processing power.
bigger and more complex game environments: Certanly, you can have bigger and more complicated game enviroments but that means that your development team will have to grow and your budget will explode; Konami will be able to afford a 90-120 man team working for 3 years to develop metal gear solid (or approximately $27-$36 Million) but I'm certain the average game will be trying to make a game on a fraction of that budget.
procedural content generation: Procedural content generation simply means that a computer (not a person) generates the content. Most of the better methods I have seen of this done end up using an insanely powerful computer working for hours to generate content that would be stored on the game disk; most of the time they involve input from the designer in order to ensure the content is correct and interesting. The PS3 and XBox 360 have an advantage in that they can procedurally generate a Wood Texture (as an example) but you can make a much better wood grain on a grid of 16 high-end workstations (working for 10 minutes) while they simulate tree growth than you can on a pixel shader in 1/60th of a second.