I am actually believe that when the graphics of games improve, they will eventually become more than real. Its an odd concept, but our reality is limited to what our eyes can see, our ears can hear, and our skin can feel. In a virtual reality connected directly to the brain, we can experience the virtual reality without being encombered by our human limitations.
As an example of this, in TES4:Oblivion I've been able to see Vistas that are impossible to see in reality. This isn't really due to enhanced graphics, but is because of an art style that isn't possible with real world physics.
which I guess brings up the point that we are also limited to what we can experience in reality by the laws of physics.
Anyway, as in the Matrix, if we could breed through some automated system, then we wouldn't have to even worry about phsyical contact.