At Cebit we saw a nice Realtime Ray Tracing simulation of complex visual and ilumination effects.
Scientists and Students at Germans Saarland University have managed to implement a technology based on programmable graphics chips, making Realtime Ray Tracing available for any standard PC. For now their solution works on SaarCOR that can provide highly complex scenes with tens of milions of poligons in realtime.
Ray tracing is better way to go for a photorealism than that you can see today. Today´s graphic hardware is very fast but photo realism can be achieved by manually tweaking and approximating lighting and visual effects such as reflections and refractions in glass materials. Ray tracing is much efficient when it comes to dealing with large worlds.
There is some incompatibility with today's Nvidias and ATI's graphic chips but nothing seriously that cant be override very easily. We heard that today's graphics chips are capable of doing ray tracing but for now Nvidia and ATI are not interested in this technology. Ray tracing is just waiting for its time to take over world as it is the right way to do lights on computers.
You can find more about real time rendering and ray tracing here.