I wonder how long it will be before we stop using animation and switch to an actual bipedal physics simulation where the agent actually knows how to walk and jump and run.

We were there over a decade ago with Euphoria, but I think they've stopped selling/developing it? GTA 4 used it. https://www.youtube.com/watch?v=HauN98naZ9U

They were acquihired by Zynga of all companies which then promptly proceeded to kill off all their products.

GTA IV's tech was quite ahead of its time (2008), with the integration of Euphoria (which had to be integrated in-house by NaturalMotion engineers inside Rockstar's studio @ Edinburgh). The other comment correctly pointed out that NaturalMotion was acquired by Zynga, who in turn got acquired by Take-Two (parent of Rockstar Games).. So who knows, perhaps we'll still see an updated version in the sixth major instalment of the franchise.

Euphoria was used for a subset of animations, for the most part traditional mocapped animations (and a lot of them) were used to drive character movements. I don’t know if motion matching was used on GTA4 but it was on other Rockstar games at the time and subsequently.

Characters blended to the hand written, custom, euphoria behaviors in certain situations… it handled falls, stumbles, deaths, etc. Generally it replaced ragdoll physics but wasn’t used during most character movement behaviors.

It seems like never because we had the tech before and everyone seems to be lazy about using it

The keywords you're looking for are "procedural animation" and "inverse kinematics" - Overgrowth was doing this in 2009.

The developer did a presentation at GDC 2014 on it: https://www.youtube.com/watch?v=LNidsMesxSE

I think you may be referring to motion matching, which this game uses and is discussed briefly in the article.