In this demo I thought it "didn't feel that way" more due to the camera positioning and character than anything else, though. The environment seemed quite indistinguishable from pre-rendered CGI.

A highly scripted tech demo is also not such an accurate representation of what real-world results are going to look like.

Yes they can render it in-engine, but they can use bespoke character animations which don't have any blending artifacts, and they can put the camera on a rail and tune the assets and particle effects until they are certain every single frame can be rendered in under 16ms. They can hide billboards and other rendering tricks and be certain the camera is never going to hit them at an angle which gives them away.

Real-world game play scenarios are much more unpredictable, and the results are likely to fall well shy of this mark.

It's definitely impressive but kind of obviously not pre-rendered still. There is quite some aliasing in smaller details of the more complex objects and the edges of shadows aren't soft. The water effects looked quite bad still.

Also, the character model's hands+feet commonly clipped the walls slightly, and sometimes had that odd sliding motion in which the overall limb seems approximately stationary with respect to the surface they're touching, but the actual edge does not, it slides about a little.

I mean... that lighting was really, really good, and I think this is the first triangle-based demo where the surfaces really don't look oddly angular almost anywhere (maybe with exception of the stalactites). But it's a far cry from the hand-tuned look of something prerendered.

It definitely wasn't indistinguishable from pre-rendered CGI, there are a lot of shadow artifacts for one thing. It looks great but we get this ever few years from the real time people - they're amazing at picking off the low hanging fruit of offline rendering and finding a quality compromised solution that can work in realtime, but they're chasing a moving target.

Often there are choices made to support a larger range of devices that require comprises on graphic quality. It doesn't make a lot of sense to build a game only 5% of your customers can afford to run.

Next-gen consoles will have to become more ubiquitous before the previous gen consoles are left out of game releases.

There are definitely diminishing returns at this point. However, I think there's a lot of room for impressive Physics demos.