Predicting the Future in Game Graphics

So I was thinking about the next 1 - 2 years of graphics programming in the game industry on the XBOX 360 and the PS3. I think we can see a few very strong trends that will sustain over the next few years.

HDR
Rendering with high-dynamic range is realized in two areas: in the renderer and in the source data == textures of objects
On current high-end platforms people run the lighting in the renderer in gamma 1.0 and they are using the 10:10:10:2 format whereever available or a 8:8:8:8 render target format that uses a non-standard color format that supports a larger range of values (> 1) and more deltas. Typically these are the LogLuv or L16uv color formats.
There are big developements for the source art. id Software published an article on a 8-bit per pixel color format -stored in a DXT5 format- that has a much better quality than the DXT1 format with 4-bit per pixel that we usually use. Before that there were numerous attempts by using scale and bias values in the hacked DXT header to use the available deltas in the texture better for -e.g.- rather dark textures. One of the challenges here was to make all this work with gamma 1.0.
On GDC 2007 I suggested during Chas. Boyds DirectX Future talk to extend DX to support a HDR format with 8-bit that also supports gamma 1.0 better. It would be great if they could come up with a better compression scheme than DXT in the future but until then we will try to make combinations of DXT1 + L16 or DXT5 hacks scenarios work :-) or utilize id Software's solution.

Normal Map Data
Some of the most expensive data is normal map data. So far we are "mis-using" the DXT formats to compress vector data. If you generally store height data this opens up more options. Many future techniques like Parallax mapping or any "normal map blending" require height map data. So this is some area of practical interest :-) ... check out the normal vector talk of the GDC 2008 tutorial day I organized at http://www.coretechniques.info/.

Lighting Models
Everyone is trying to find lighting models that allow to mimic a wider range of materials. The Strauss lighting model seems to be popular and some people come up with their own lighting models.

Renderer Design
To render opaque objects there are currently two renderer designs on the end of the spectrum. The so called deferred renderer and the so called forward renderer. The idea of the deferred renderer design came up to allow a higher number of lights. The advantage of a higher number of lights has to be bought by having lower quality settings in other areas.
So people now start to research new renderer designs that have the advantages of both designs but none of the disadvantages. There is a Light indexed renderer and I am working on a Light pre-pass renderer. New renderer designs will allow more light sources ... but what is a light source without shadow? ...

Shadows
Lots of progress was made with shadows. Cascaded Shadow maps are now the favorite way to split up shadow data along the view frustum. Nevertheless there are more ways to distribute the shadow resolution. This is an interesting area of research.
The other big area is using probability functions to replace the binary depth comparison. Then the next big thing will be soft shadows that become softer when the distance between the occluder and the receiver becomes bigger.


Global Illumination
This is the area with the biggest growth potential currently in games :-) Like screen-space ambient occlusion that is super popular now because of Crysis, screen-space irradiance will offer lots of research opportunities.
To target more advanced hardware, Carsten Dachsbacher approach in ShaderX5 looks to me like a great starting point.