Before we begin I just want you to know that I'm not going to retread the tired argument that MMORPGs are mostly fantasy games that have little in common with reality and just stick to criticizing the broader idea of realism in games. There's a small vocal minority that seems to think that games should be closer to real-life who are also impossible to please. Even if you created a peripheral that administered location accurate, mild lacerations every time their avatar was struck with a sword, it still wouldn't be "real" enough for them. Beware of these asshats because it was people just like them that killed the flight sim genre.
Most of us don't want reality in our games. We're perfectly happy with the gleefully over the top antics of Counter-Strike and the arbitrarily unrealistic play mechanics of Battlefield 2. We'd rather that the proceedings look authentic than play authentic. We love CoD4, even though we can heal from any wound in about five seconds flat, because the atmosphere feels the way we imagine a real battle would feel. We totally dig Rainbow Six Vegas for its nod to Tom Clancy authenticity even as it allows us to stand ten feet away from an enemy firing an Ak-47 and live. You see, most of us don't really want the glacial pace that results from the absolute realism of something like ArmA. We want to be HEROES who can absorb bullets like so many titanium sponges while charging forward launching flaming, exploding chainsaws out of our sniper cannons of doom!
Hell, even America's Army cuts so much slack with reality that you can employ suicidal tactics and win. If you want to play something more realistic there are things like paintball, airsoft, and the Society For Creative Anachronisms. You just can't get more real than doing something in real life. Not that I think you should join the military and do it for real that is...
And that brings me to another point about realism. You can't have it without fear. Let's take a couple of real world examples. Here's some short footage of a skirmish in Fallujah. Not exactly the same as a round of Counter-Strike is it? Here's some more CQB in a single house over in Iraq. Notice that not only is it extremely slow paced, but the soldiers actually give a damn. You simply cannot achieve that kind of tension in any simulation.
I know that some of you probably had a hard time watching that last video, but I did have a reason. The point being that even if we add a small amount of pain, nothing short of the possibility of death will make a player act in a way other than completely suicidal and unrealistic. And seriously, we don't want the experience that those soldiers were having. We don't want the experience that the pikemen at the Battle of Hastings had. We don't even want the experience that Gladiators in Rome had. We want diverting childhood power fantasies that take us as far away from reality as we can get.