I think the biggest reason we're not seeing any "real" innovation, if you wish to call it that, is because the market has yet to actually embrace any kind of innovation that's already been tried.
We've had VR goggles, but at the time they were like 1800 bucks a pop, and nobody bought them. We've seen chairs that shake and electrocute your whole body, and nobody wants to buy them.
As long as there is no market, any device that tries to do something new will automatically be priced at a range that's beyond that what the average person will be willing to pay, thereby condemning the device to that ultra high priced gimmick stratosphere, which turns it into an endless circle.
Furthermore, most of those innovations would take up space, which most people probably don't have, and I think that with the average age of the gamer seeming to go down, it's also a question of "is it cool enough".
Having said that, I don't think you can really say that there has been NO innovation over the past 20 years. In 1985 we were playing things like Zaxxon and Robin to the Rescue. I believe The Last Ninja came out in 1997 with 16 colors, and it looked absolutely AMAZING at the time.
If somebody had shown me screenshots of Farcry in 1987, I would have crapped myself.
The inventions of the 3d accelerator card and the 5.1 surround sound standard have worked miracles for games. I agree with one previous poster that I believe the next "innovation" will come in physics. One company has already demonstrated the physics card, which would handle all physics calculations, and would make Havok 2 look like Wolfenstein to its Doom 3.
And let's not forget multiplayer. That's a lot of innovation, in my book.
As for what REAL innovation we'd find at some point in the future, I don't know. VR has been shown not to strike a cord with most gaming audiences, (and it basically overwhelms your senses anyways) and is way too expensive, and while smell would be a neat little gimmick, I wonder how much following it would receive.
You might be enthused by the idea of smelling that rank, damp sewer your dwarf is trotting through while carrying your crisp basilisk urethra, but I think I'd rather skip it.

A gamer's Significant Other might also have something to say about the rank smell of the dead on the battlefield wafting through the house...
As for taste and sense, I don't see how much use they'd be in the most common current day games, so I doubt they'd see much development time.
And that covers all five senses, so how much farther can you go. I guess we could see some headway into the brainwaves in the next 25 years or so, either for control purposes, or for direct immersion, but how many people are going to want to hook a computer up to their brain just to play some games? The pilots in the airforce already weren't too happy with any of the tests done.
Sorry, I know you said you wanted visions of some game utopia in the future, I just think that reality will show us that apart from physics, better sounds and better graphics, we'll stay where we are for now.
Creston