Competing Interests
The next element in understanding how a good technology demo is made requires knowing the audience and this requires understanding the dynamics of the PC graphics industry versus the console industry. The key difference is that with the PC, the interests of software and hardware aren't aligned. On the console development side, there is significant incentive for developers to concentrate on a specific platform. By drawing upon the strengths of the platform (e.g. high fillrate of the PS2, or real-time Dolby Digital on the XBOX, or dual screens of the Nintendo DS), they are able to make their product stand out. Doing this not increases sales for the publisher, but it also increases sales for the hardware manufacturer. Thus hardware manufacturers have an incentive to keep these developers close to their platform and achieve this through providing exceptional technical assistance, marketing assistance, and financial rewards. This is how games like Metal Gear Solid 3, Gran Turismo 4, Halo, and Steel Battalion are made.
On the PC side, because the relationship between software and hardware developers is informal, there is less incentive for software developers to push the limits or draw upon the unique talents of an individual product. The more platform-specific a title, the smaller potential user base there is. With the console, this was OK because it gave developers a chance to reduce their competition (an RPG on the Xbox doesn't have to go against SquareENIX) and because they had an opportunity to make up lost sales through exclusive-platform deals. PC developers face greater competition from other software titles in the same genre that will run on multiple graphics cards, and the amount of support that can be given by the hardware manufacturers is significantly less. Then, taking into account that the average PC gamer does not have flagship hardware (due in part because PC hardware cannot be sold below cost) there is even less incentive for developers to push the limits of PC hardware. Sure a game like Far Cry stresses out most PC's, but we're not seeing games that'll recommend a 3 GHz class CPU and GeForce FX 5900/Radeon 9700 as the minimum spec.
In the end, there are just a handful of developers who have the financial stability and personal passion to create the next world-class graphics engine. The only way to align interests would be for hardware manufacturers to take on first-party software development, a foolish undertaking unless the first-party studio is capable of producing 'quadruple-A' FiringSquad Editor's Choice games at reasonable budgets.