That's funny you bring up the PS3, because my first reaction to the parent commenter and the OP video was how I remember thinking things couldn't get much better than the PS3 demos [0] – which now look comparatively primitive – but I've had that same feeling with PS4 and now PS5. But PS5 really does seem to be getting close to real-time interactive realism.

But I agree with you that I expected games to be much "better" by 2020, back when I was a kid playing 7th Guest. I guess I couldn't understand back then how much manual, hard-to-scale labor and budget would have to go into story, dialogue, art, acting (plus salaries of A-list movie stars), mo-cap, etc. I expected in-depth scripted NPC behavior, like in 1992's Ultima VII [1], to be extremely commonplace and basic by now, but I obviously didn't understand back then what actual AI and emergent simulation requires (versus manual scripting, and testing of that scripting)

[0] https://www.youtube.com/watch?v=pzvOgTABwr0

[1] https://www.filfre.net/2019/02/ultima-vii/