Looking at "the usual suspects" (water, shadows, grass/foliage, cloth, hair) we've always checked out as far as gaming benchmarks are concerned, I think we can recognise various tiers of accomplishments.
For [still] water, we've come a long way.
Shadows have improved, but we're clearly not there yet. Flowing water has also been improved, but most games are still faking it instead of actually simulating it.
Grass, cloth and hair are still in the beginning stages and only very few titles have even bothered to make them look really good. Witcher 2 has good grass. Flat grass textures and bush sprites/bitmaps don't really cut it anymore. Alice did some interesting stuff with hair simulation and while clearly "a first step", it's something that stands out and is immediately noticeable. Mirror's Edge (PhysX) does good stuff with cloth, having it actually react to the world, tearing realistically... but we've seen games get one thing right but not bother with the others, always making compromises.
I mean, the tech to solve these individual issues seems to be there, we've all seen the various tech demos that offer convincing hair simulation (nvidia mermaid was 2006 ffs), fluid simulation (tons of demos), and we have seen some games get one element right but not the others... it's definitely a lot of work for effects that seem minor (but actually have huge impact on the immersion and believability of the game world) - and when you have limited (and at this point, frankly, outdated) resources available as is the case for the current consoles, it's no wonder that people can still be disappointed with the state of these things today.
That said and going by their previous work... I don't think Bungie of all people will be the ones to solve these.
