I think Elon is wrong, but for technical reasons, not philosophical ones. For one, we do not have photorealistic simulations for real-time games. We're not even close, frankly. Still-renders can pass the photorealism barrier, as in indistinguishable from a photograph, but even state-of-the-art triple A games are still facilely obvious simulations.

Most importantly, there hasn't been much progress in the past few years. Compare Battlefield 3 (2011) with Battlefield 4 (2013) with Battlefield 1 (2016, strangely enough), and you really won't see that much progress in realism. While you can get pretty screenshots, as soon as it's in motion, the distance from reality is obvious. What's missing is physics. Good physics simulations (ie fluid flow, soft-body, divisible materials, etc) is so computationally expensive that I doubt anything even approaching it will ever be realtime possible.

Why? Because the rate of improvement is slowing. Those paying attention know Moore's law is running out of steam (Intel recently had to insert an extra tick into their tick-tock model), and power draw / heat dissipation are ever more difficult to push. Arguments for the singularity / simulation all rely on an exponential curve being projected as far into the future as the speaker feels necessary, but in reality, there is no such thing as an exponential curve. All physical processes that experience exponential looking growth eventually slow down, forming a logistic curve, and it's looking like the growth curve for FLOPS is going to top out well before "photorealistic realtime simulation of the entire world available to every consumer".