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I dont think anything is holding graphics back. Look how far it has progressed over the years. Gameplay is more important than anything anyway. Look at some of the awesome titles that have came out recently that relied mainly on gameplay. Super Meatboy, Trials HD, Limbo, Braid, Comic Jumper. There are a lot of games that have mind blowing graphics too. Uncharted 2, Heavy Rain, Alan Wake, Castlevania, Assassins Creed and Black Ops. We have come along way since Galaga and Pacman thats for sure.
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