Graphics can go much further. The problem is, unexplored ideas in graphics are largely about nuance and making a believable simulation, which is something no one is interested in doing; you can't put "better immersion" as a bullet point on the box the same way you can't put anti-aliasing there, so it never gets done.
I disagree. The majority of graphical advancements over the past few years have been relatively subtle. HDR, tessellation, ambient occlusion, parallax occlusion mapping, etc, are all pretty subtle improvements that, when used properly, can really make a scene more immersive.