The opinion piece "Can Games Become 'Virtual Murder?'" from Benj Edwards questions what the impact will be of more photo-realistic games reallisticly depicting murder.
I agree with him that the hardware will evolve to a point where it is possible to display such murders, yet I am pretty much convinced he will have a hard time finding these games at his local gamestore. Not because regulators will have stepped up, but because nobody will buy those games.
For anyone contemplating about the subject of video game violence, I recommend reading "On Killing" from Lieutenant-Colonel Dave Grossman. This former army ranger and professor has studied the impact of killing on the human mind.
His research and that from many other scientists revealed that humans posses an innate resistance to killing. When the US military discovered this after WW2 they adopted special training methods. These methods (like shooting at lifesize cardbords of soldiers instead of a bullseye) are designed to circumvent that resistance.
Yes, I agree on a basic level players get the same training through video games. But there is a downside to all this training for both soldiers and players. Grossman discovered that no matter how good the soldiers training was and how good they were desensitized, most soldiers would suffer psychologically once they killed their first human.
The new training methods of the military, facilitate the act of killing, but it does not resolve the psychological burden killing places on people.
Current game technology and presentation of the targets, still works because we can clearly distinguish reality from virtual reality. Our victims don't bleed and die like real humans, so most players have no qualms about shooting virtual soldiers.
But if games evolve to the point that victims die realisticly, most players will back down and simply refuse to buy, let alone play such a game. It's not because the technology evolves beyond an ethical point that humans will start behaving accordingly.