I wonder if the increasing "lifelessness" of videogames is not only caused by the same open-world ubisoft-style formula and microtransactions, but by increasing graphical fidelity while having extremely static environments in these games.

The game world should feel like an actual world and not a diorama with extra steps.

The real world is at the same time insanely detailed and also not nearly as "dense" as a videogame world.

Insanely detailed because literally every pebble is unique and can be interacted with in a huge variety of way. Just on my desk at the moment I have over 20 different objects, all with different physical attributes. Some could be set on fire, some can contain liquids, some are purely decorative, some are hinged, some contain electronics, etc etc etc.

At the same time, there is very little in my house that a videogame protagonist would actually want to interact with. I live in a town with several thousand homes and small businesses that similarly have very little to offer in the usual videogame sense. Even in fairly large open worlds like The Witcher 3, it's often not even 5 minutes on horseback between towns and even small hamlets will have at least several quests and/or some vendors. Just to get to the next town in the real world would take over an hour on horseback, and that town would be just as boring as mine to a videogame character.

TL;DR You don't actually want a videogame world to be like the real world, there is not enough to do in the real world that you would want to do in a videogame.

Hogwarts Legacy completely averts this trope. It's probably worth a play.

I think it's primarily successful because of its use of uses smaller, mostly linear environments. It's also swath with plenty of shaders & animations that react or trigger on player position—there's always multiple things happening on screen, not just one idly spinning fan off in a corner somewhere.

Is there realistic physics? e.g. Can the player character kick a ball and it will spin?

You would need to provide some evidence that games are actually increasing in “lifelessness”. I find little evidence in favour of that idea.

My interpretation of the comment was that pursuit of realism leads to incredibly complex and specialized systems that are much more difficult to define the iteractions of.

E.g. Imagine a player jumps and bumps into a light source in a simple game: We add an up force to the player object, when it bumps into the light source we calculate the collision of the two shapes and calculate the resultant forces, move the player and light, and then recalculate the light of the scene for that frame.

In a complex game: We designed the inverse kinematics system to position the feet without the idea that a player would ever leave the ground, we don't have any more mocap studio time so we don't have a jump animation, the characters hair physics look really weird if we just apply an upwards force so we need to code a work around for that, if the player bumps into the light we can't move it because we have to precalculate the lighting at compile time, etc. Better to just not let the character jump.

Yeah but my point is that I don’t think games are actually getting worse at that. If you go back and look at most older AAA games they actually have much less richness of interaction (on average) than the games that are coming out these days.

Peak "lifelessness era" was arguably the early 2010s. At the time there were leaps in graphical fidelity every year, and celebrity mocap and voice acting was a thing. Mechanisms like regenerating health were very popular to create very breezy theme park rides in video game form, like Mass Effect 2/3. You basically spend half the game wandering space malls, and the other running cover to cover. Very fun at the time, but there is nothing to do in the game that wasn't an anticipated interaction or choreographed shooting gallery.

Since then Souls-likes brought back the idea of difficult challenge, roguelikes have brought back the idea of compounding game systems with a vengeance. Some of the most beloved titles in recent years were indie (e.g. Subnautica or Outer Wilds). It's not quite as bad as it used to be.

The critique about Unreal/Unity though is just that the basic tropes of the FPS/TPS open sandbox are now very stale. If developers use off-the-shelf game systems wholesale, they will end up with no-name brand gameplay. Largely games still move like Oblivion did, modulo some platforming / ledge grabbing.

Valheim is an interesting mention here, because I would basically describe that game as "Oblivion/Morrowind except the level designer is you". It's not that it's full of life, it just provides a good backdrop for your own imagination.