I think diminishing returns are real... Even though each generation I say things can't get much better and there is SOMETHING that ends up amazing me... It's a lot harder to impress me each time.
However this (really old) picture doesn't exactly represent the way the industry has actually gone (even at the time)... it's sort of misleading.
1. it's only talking about polygons, which a long time ago was a majorly important part of performance, and is basically not a problem anymore.
2. that last model should have the jacket fully modelled for example as well as the bow tie and the hair should be tons of planes, that stuff was happening even in the 360 era, take a look at Assassin's Creed for example.
Edward had a poly count of just under 40,000 for the whole character. And there's a lot more detail in it that the bust in the picture.
Not to mention the realization of new rendering technologies... The returns are diminishing... It's just that we got REALLY good at faking it, (lighting is a good example here) now that hardware has caught up and we can do it a real way (ray tracing) the change is huge technically ... but visually sometimes you have to strain to see the differences.
I think there's still plenty of things that can be improved, things like actual hair, actual fluid simulation, better cloth sim so your character actually is wearing clothes instead of the clothes being skinned to the rig. Better real time volumetrics for fog and clouds and weather stuff. Again we're pretty good at faking this stuff ... I'm excited to see how we tackle these aspects in the future.
Also I hope I didn't trounce your post, just adding to the conversation and pointing out some things I noticed that's all.