The way I understand the question, will we ever have video game literature. I mean games that are to the rest of the genre what literature is to fiction.

No matter what, the game is fiction. Unless you're talking about a gaming loop: gamer plays himself playing himself playing himself, etc.

So if all games are fiction, the closest they will come to replicating reality is to approach literature, and by literature I mean the style of fiction wherein all things therein could and would happen. Based on real places, maybe real people. And I guess I'm specifically referring to Literary Realism, but the broader context works too.

My basic answer: I think anything that exists in one entertainment medium can be translated into another. e.g. There are movies that are poems. There are books that replicate Jazz (Toni Morrison et al), so why not a game that approaches the realism of literature. It would take a deft hand to pull off and it would almost necessarily be niche, but it could work. I know would play a game like this.