Blurring the lines with reality

Let's suppose for a moment that at some point down the line, graphics, AI, programming, animation and all the requisite components come together to perfectly imitate real life. When this happens, how does one distinguish between a “game” and reality? Is a game even a game anymore? You'll end up with some freaky Matrix-like scenario where it's nearly impossible to tell what is real and what is virtual.  

The societal and cultural implications of such a technological advancement would be huge and potentially very scary. We doubt today's game designers joined the industry to create a faux reality. Moreover – and we realize we're getting a bit carried away here – if the AI is so highly advanced that it can pass the Turing test, doesn't it have the “intelligence” to design and replicate itself and the world around it? So why would game designers – or alas, humans – even be necessary?  Again, we're on the crazy Matrix wavelength here, but it's fun to think about.