Next Steps in Video Games
So what's next? Predicting the future is hard, so we'll look at the real world to give us a hint of what's to come in the virtual world. 3D engines are just a bunch of math that's used to render the world on your screen. In the real world, if you take mathematics, and you apply it, you get physics (basically). So there's our next step - which has already been taken. But what happens when you apply physics? As a student in an "applied physics" program, I can say with good authority that you get engineering. Engineering is concerned with the properties of non-ideal objects - instead of the rigid, unbreakable solids of physics, you have things that can bend, deform, break... It doesn't seem like that big a deal, but imagine a game where if you shot a bridge with a rocket launcher, it would weaken and collapse - without being scripted. Or you could plant explosives in a building to demolish it. Wouldn't that be cool? Red Faction's Geo-Mod engine was a very rudimentary form of this - you could destroy walls and collapse rock bridges by blowing them up. It isn't likely to be implemented fully until games start using voxel rendering (which will be a good complement to the anticipated switch to raytracing - it takes about 40 Ghz of processing power to raytrace a videogame in real-time, but dedicated hardware could mean it happens much sooner).
It's likely that another application of physics - chemistry - will be introduced to gaming at the same time as engineering engines. This won't be quite as exciting, but we may see some neat effects like pouring acid onto a cable to make it break, or being able to burn objects.
As for the next step, I'm guessing biology (applied chemistry?). This will allow for not only genetics and evolution (i.e. the upcoming game "Spore"), but also realistic organ systems and bone structures - so you could break your leg and be unable to move, or get shot and experience different effects depending on where you were hit (more than just the "zoned" systems of today where a headshot hurts you more than getting shot in the leg). Biology could apply to other things in the game, such as trees or animals, though this might be more useful for an MMORPG than a first person shooter.
Speaking of MMORPGs and FPSs, I think the line is going to start blurring pretty soon (if it hasn't already). Internet connectivity is only going to increase in the future, so it's likely that games will focus more on the multiplayer experience than a singleplayer one. So an FPS could take place as a sub-part of a larger game world, with the advantage that you could get friends to come and help you on your mission, or you could step out of it and enjoy other parts of the game when you get bored.
So that's my prediction for the future (the near future, at least). Call me when engineering engines are being implemented.