That's the AI Effect: http://en.wikipedia.org/wiki/AI_effect

Personally, I believe there's a tipping point where our society will no longer be able to live in denial that we've built AI. We're not there yet since there are still a huge number of things people can do that computers can't. For example, no AI has really passed the Turing Test yet. So pretty obviously, we don't yet have "Real AI", and I understand the AI Effect, even though it's unfortunate.

But surely, there's a point where it'll be blindingly obvious that our machines are intelligent?

The point where it is blindingly obvious that we have created intelligent machines will require passing the point where it is blindingly obvious what "intelligence" is. I would go further to describe these as a circular dependency.

Indeed, it seems like some peoples' definition of "intelligence" is "what humans can do that computers can't".

That seems like a perfectly valid definition. Certainly one of the most useful and least arbitrary that we have available to us currently.

No, it's not a valid definition, because human capabilities vary way too much.

Name something that "humans can do that computers can't", and I bet I'll find you a human person that can't do it either.

For example, at a previous job we wanted to introduce cognitive captchas to avoid accessibility issues with visual ones. We were told we couldn't do that because some of our target audience had learning difficulties and would not be able to pass them. (Coincidentally, there was HN post the other day about how Wolfram Alpha can pass a good proportion of captchas similar to what we had planned to use)

I fear that society at large will not really get past this denial you speak of until we have a humanoid type of AI, something that the standard, non-science oriented person can look at and say, "Wow this is uncanny." It will need to be shoved right in their face in the most blatant way imaginable.

Advances in natural language processing, metaheuristics and machine learning, as examples, are clearly steps toward the "holy grail" but to the average person it is nigh meaningless.

Artificial Intelligence is not hard, we've had it for awhile i.e. chess.

Lay people think AI means something like artificial intuition. Which is very hard and can only be done poorly within narrow domains.

There's always the Turing test.