I agree with Gnome.
But i'd rather play a bad game with good graphics
Wow, I completely disagree. What about older games? For example, Panzer Dragoon Saga (my favorite game) is on the Sega Saturn and thus has 3d graphics that are totally crappy by today's standards, but at the same time has a really interesting and deep story and really cinematic and fun battles.
(1) No, the possibilities are endless. We just need to think of them.
I kind of disagree with this as well. I think there are only so many possible genres of games to create (FPS, RPG, RTS, SHUMP, ect). This is similar to movies and books, where its pretty accepted that there are a only a few basic stories that can be told, and all works are based on those stories. I think that innovation in games has to come with the design and story, not gameplay.
For example, take a game like Final Fantasy VII. It has the exact same gameplay as every other JRPG, and yet it is still held as one of the greatest games of all time. This isn't because it does anything differently from other turn-based RPGs, it's because the game has a great story and timelessly awesome characters.