When it comes to improving how a game feels, there's three areas where a LOT more work can be done:
- sound: there's too much stock sounds and not enough ambient noise in games. Sound and music is what really drags you into a game - our ears play a vital part in the experience. A gorgeous game with poor sounds and noises is not going to feel right. At least 95% of all games made screw up massively in this area and the reason why, is because marketing folks should get slapped in the face - they're the reason. They can't market sound so they pump all the money into better graphics.
- physics: we have great graphics but it all falls to pieces the moment physics become involved. Rag dolls still look ridiculous, nothing in game worlds reacts correctly, When you consider how important physics are to create a believable world ... . Even such things as wind and flowers, plants, trees require decent physics.
- animation: as far as animation has come, it's still not perfect - especially when you consider the animation of non-human elements like animals, equipment, etc.
- AI. Seriously, AI hasn't improved one iota in 10 years. In fact, it has gotten worse for most AAA games. Even in big budget games like GTA IV, you see tons of very poor AI - and in racing games, AI is worse than what it was in the 90's!
Seriously, graphics have progressed far but they cost a lot to make and there's other elements that can be improved that would contribute to a much richer experience.
Racing games have gotten worse? Play the racing missions in Grand Theft Auto 3 and Jak II.