If today's in-game graphics were at the same standard as today's in-game artificial intelligence, then games would be monochromatic, in a very low resolution with huge (and rectangular, not square) pixel, with the letter X being your in-game character, minus signs for bullets (even if the 'bullets' were moving vertically, and with dollar signs representing the enemies. And even then the screen would flicker badly enough to give you a headache.
But sadly graphics sell games, whereas no games get sold on the merit of their A.I. routines (well, except for Chess games, which is pointless as a Chess game from the eighties can thrash 99% of humans, so the fact that a new Chess game is the best player yet is like you choosing to fight the best boxer of all time when you're Stephen Hawking), so companies continually improve the graphics over time. As a result, we have stunning looking games, but the NPCs (non-player characters) are not only utterly of holding fairly convincing conversations with us, they can't even remember things that have happened a few minutes ago in game time. In most open world games, the NPCs mainly just 'exist' long enough to spout a few random sentences then disappear again when they're out of your sight, and when you can see them they either stand still or walk pointlessly to a preset location. There are exceptions, but if you scratch a little deeper then the limiations of the fixed scripting becomes all too apparent.
Still, good A.I. (like your own real-life health, or freedom) is something you don't notice, you only notice it's absence. When an in-game character does something stupid (walks into a wall, continually shoots a wall, drives over a team mate, etc, people talk (and often laugh) about it, but when a game behaves cleverly it's often ignored, or even put down to random luck. To this day, people still debate if the enemies in Mr Do! (a classic arcade game from about 1981) are clever or lucky, as the do occasionally seem to anticipate the player's movements (and off-hand I can't think of one other arcade game that demonstrates (possible) good A.I. to this level). There are some games that exhibit good AI, but they are few and far between. Such games include games like the Unreal Tournament series, the FEAR series, the Half-Life series, or console games like the Halo series, Perfect Dark, and Unreal Championship 2), but even they are only performing relatively fairly simple tasks, being players in a first person shooter.
In fact, it's harder to create a 'realistic' (i.e. one that can make mistakes and also lose to humans) bot than it is to create a good one, as (a) you can always allow a bot to cheat (since the PC or console knows everything about the current game, so by extension the enemies can know everything too, if they're programmed to), and (b) the computer controlled enemies can 'think' much faster than humans can (though it's not real thought, of course, just a very limited set of decisions and actions).
